Fed Begins October Meeting With Rates Expected to Hold at 3.75%–4.00%
Key Facts
The Federal Open Market Committee began its scheduled October 27 and 28 meeting, with broad expectations that it will hold the target interest rate range at 3.75%–4.00%. The Associated Press said investors see a "very small chance" of a rate increase, as bets on a hike that followed higher-than-expected inflation data for the second consecutive month have receded. The chair will hold a news conference on October 28 at 2:30 p.m. Eastern time, after the decision is released. The meeting follows the Fed’s quarter-point rate increase in September, a decision approved unanimously by 12 votes to zero. That leaves policymakers weighing inflation’s continued level above target against a slowdown in the pace of hiring.
The Fed’s preferred inflation gauge, personal consumption expenditures, stood at 3.4% year over year in August, with a monthly increase of 0.3%. Core inflation, which excludes food and energy, was 3.0% annually and 0.2% monthly, according to the Bureau of Economic Analysis. The annual reading remains above the committee’s 2% target, while the September statement said economic activity was expanding at a solid pace and inflation remained elevated. The Associated Press reported that inflation data came in higher than expected for the second consecutive month, leading some investors and economists to expect an additional quarter-point increase before those expectations receded. The report also noted that higher diesel prices could add pressure to the cost of transporting goods and food; a gallon cost $6.53 in late September before falling to $6.35 at the time the report was published.
Labor market data, by contrast, came in weaker than its previous average: the U.S. economy added 29,000 nonfarm jobs in September, while the unemployment rate remained at 4.2%. Monthly job gains averaged 45,000 over the previous twelve months, according to the Bureau of Labor Statistics. The figures give officials a signal that hiring is moderating, while annual inflation remains above target. In the September economic projections, participants put the median estimate for real GDP growth at 2.3% for 2026 and 2.4% for 2027. Their median inflation projections were 3.4% and 2.5% for the same years, according to Fed tables.
Pre-meeting surveys show a consensus that rates will hold in October, while disagreement persists over the next move. Ninety-four of 100 economists surveyed by Reuters expected rates to hold at the current meeting, while all 100 participants expected a hike in December, according to Investing.com. The Associated Press reported that senior officials played down the prospect of an October rate increase, while some Fed watchers expected two or three dissents among the twelve voting officials. September’s decision was unanimous, making any potential dissent at the October meeting a sign of differing assessments within the committee. These expectations remain tied to price and labor data, the wording of the meeting statement and the chair’s remarks.
Bond yields and broader borrowing costs form part of the backdrop to the debate. On October 26, the 10-year U.S. Treasury yield fell to 4.98% from 5.00% at Friday’s close, while the two-year yield rose to 4.71% from 4.69%, according to the Associated Press. Fed Vice Chair Philip Jefferson said his colleagues needed to form their own judgment about the rise in yields, adding: "That may take longer." Minutes of the September meeting showed participants had noted rising Treasury yields, short-term inflation compensation and stock prices, along with a decline in the dollar between meetings. The minutes linked part of the shift in policy expectations to committee communications and incoming inflation data.
Mortgage costs have eased slightly from their recent peak but remain above their level a year ago. The average rate on a 30-year fixed mortgage was 7.4% earlier in October, then fell to 7.32% in the week before the Associated Press report was published, after standing just below 6.2% a year earlier. In markets, U.S. stocks closed higher on October 26, with the S&P 500 up 0.7%, the Dow Jones up 0.3% and the Nasdaq up 0.8%. In a report published on the morning of October 27, the agency said the Nikkei 225 rose 1.7% to 63,268.37 points during trading in Tokyo. Stock and bond moves come in a week when attention is focused on the Fed decision and the next price data.
The next milestone for traders comes on October 29, when the September personal income and outlays report, including the personal consumption expenditures index, is released at 8:30 a.m. Eastern time. The U.S. jobs report for October is due on November 6 at 8:30 a.m. Eastern time. The Fed will then publish the minutes of its October meeting on November 18, ahead of its next meeting scheduled for December 8 and 9. The October 28 news conference will be the first opportunity for the chair to explain officials’ assessment of the data and the committee’s discussion. These dates provide a sequence of readings and communications ahead of the December meeting, where economists’ expectations reported in the Reuters survey center on the possibility of a rate increase.