Fed expected to pause this week, but markets see more rate hikes ahead

The US Federal Reserve has signalled it will not raise borrowing costs at this week’s meeting, keeping its policy rate in the 3.75%–4.00% range after the hike in September, Reuters reports. Investors, however, doubt the pause will last long.

Why markets expect more tightening

Data due the day after Wednesday’s decision is expected to show that inflation picked up in September and spread well beyond fuel prices, and that third-quarter GDP grew strongly — economists polled expect around 3.2% — on solid consumer spending and AI-driven business investment. Unemployment was 4.2% last month and weekly jobless claims are very low.

Analysts told Reuters that a second straight hike might have been on the table had Treasury yields not jumped sharply after the September move. According to LSEG data cited by Reuters, traders still see a December hike as firmly possible and price at least two 25-basis-point increases by mid-2027. The Fed’s preferred inflation gauge, the September PCE index, is due on Thursday.