94 of 100 Economists Expect Fed to Hold Rates in October and Raise Them in December

Key Facts

Ninety-four of the 100 economists surveyed by Reuters between October 16 and 20 expect the Federal Reserve to keep its target rate range at 3.75%-4.00% at its meeting spanning October 27 and 28. The Fed is meeting as indicators of economic activity and consumer confidence diverge, while inflation remains above the central bank’s target. But expectations for a hold in October do not mean the path of monetary policy in the following months is clear. All participating economists expected a rate hike in December, a sharp shift from the previous month’s poll. These are economists’ estimates; the actual decision rests with the Federal Open Market Committee.

The comparison between the two polls highlights a rapid shift in year-end expectations: fewer than half of respondents in the September poll expected a December increase, compared with all 100 economists in the October poll. The Fed unanimously raised rates by 25 basis points in September. With a hold at the current meeting seen as likely, attention is turning to whether the committee will signal a later increase. But the Reuters report said Fed Chair Kevin Warsh is not inclined to offer rate guidance and has not announced his position on the December decision. The poll’s expectations therefore do not confirm a future decision or indicate that an increase is settled. The Fed is scheduled to hold its next meeting on December 8 and 9.

Further out, about 60% of economists who provided estimates for the peak expect the rate to reach a range of 4.00%-4.25%. By contrast, 38 of 92 economists expected at least two more increases, showing differences in views on the potential extent of monetary tightening after December. These forecasts come as the Reuters poll suggests the personal consumption expenditures price index, the Fed’s preferred inflation gauge, will remain more than 100 basis points above the 2% target over the coming quarters. The median estimate also sees inflation not returning to the target before at least 2028. This means the debate over rates is unfolding against a backdrop of persistent price pressures, even as a hold is expected in October.

Activity data present a mixed picture: the preliminary composite purchasing managers’ index fell to 57.6 in October from 58.4 in September, but remained in strong growth territory. The services index declined to 57.9 from 58.8, while the October reading was close to the estimate of 58.0. S&P Global said the overall increase in prices for goods and services was the largest since August 2022. Survey respondents cited higher input costs related to oil, energy, fuel and shipping. The Reuters report links pressure on the cost of living to higher energy costs associated with the war with Iran and new tariffs on imported goods.

Consumer confidence, by contrast, showed little improvement: the University of Michigan’s index stood at 48.0 in October, compared with a final reading of 48.1 in September. October’s reading was the second-lowest on record, after 44.8 in May. The university announced the result on October 23 amid concerns about purchasing power. The reading adds to signs of weak household sentiment alongside purchasing managers’ indexes remaining above the strong-growth threshold. It also leaves policymakers weighing the need to contain inflation against activity and employment: The Associated Press said higher interest rates and slower growth could curb inflation, but may hurt job growth as the labor market shows signs of strain.

Bond market moves show the sensitivity of yields to inflation and rate expectations: Long-term yields rose to multi-decade highs on October 7 before retreating by about 25 basis points as the likelihood of an October rate hike receded. That move alone does not provide evidence of the committee’s decision, but places this week’s meeting in a period when investors are reassessing short-term expectations. The rate decision and press conference will be on October 28, after the committee meeting begins on October 27. The personal consumption expenditures report for September was scheduled for release on Thursday of the same week, with economists expecting annual inflation to rise to 3.7% from 3.4% in August. The first estimate of third-quarter gross domestic product growth was also scheduled for release; economists expected annualized growth of 1.7%, after 2.2% in the second quarter, with the estimate due Thursday.