The Federal Reserve is expected to pause its tightening campaign at next week’s policy meeting before raising interest rates again in December, as economists become increasingly convinced that persistent inflation will require additional restraint.
Ninety-four of 100 economists surveyed by Reuters from October 16 through October 20 expect the Fed to leave the federal-funds target range unchanged at 3.75%-4.00% at its October 27-28 meeting.
The stronger signal comes from December.
All 100 economists surveyed expect the central bank to raise rates at its final meeting of the year. That represents a sharp change from the previous Reuters poll, when fewer than half expected a December increase.
The Federal Open Market Committee raised rates by 25 basis points in September as policymakers responded to renewed inflation pressure.
The latest survey indicates that the debate is increasingly shifting away from whether the Fed will tighten again and toward how far rates ultimately need to rise.
Nearly 60% of economists surveyed expect the policy rate to peak at 4.00%-4.25%. Another 38 of 92 respondents expect at least two additional increases, significantly more than in the previous survey.
Inflation remains the central problem.
Economists expect the Personal Consumption Expenditures price index, the Fed’s preferred inflation measure, to remain more than one percentage point above the central bank’s 2% target over coming quarters and not return to target until at least 2028.
Economic growth is also giving policymakers room to remain restrictive.
The U.S. economy expanded at a 2.2% annualized rate during the second quarter and is estimated to have grown approximately 3.2% during the third quarter. Full-year growth is forecast at 2.3% for 2026 and 2.1% for 2027.
That combination of persistent inflation and resilient growth reduces pressure on the Fed to lower borrowing costs.
For financial markets, the distinction between October and December matters.
A pause next week would give policymakers additional time to assess inflation and economic activity without signaling that the tightening cycle is finished. A December increase would reinforce expectations that borrowing costs could remain elevated into 2027.
Treasury yields, the dollar and rate-sensitive equities will now react not only to the Fed’s October decision but also to any indication that policymakers share the increasingly hawkish year-end outlook.
