The Fed will pause rate hikes this time, but can markets really breathe a sigh of relief?
With the October 27–28 FOMC meeting approaching, the latest signals have shifted subtly. According to a survey, most economists expect the Fed to hold rates at 3.75%–4.00% this month, but many expect another rate hike in December.
Inflation is the biggest wildcard
U.S. CPI rose 3.7% year over year in September, up from 3.4% previously, while core CPI rose 2.6%. Gasoline prices jumped 9.1% in a single month, and energy costs are pushing inflation higher again.
My view is that a pause in October is still likely, but that doesn’t mean the rate-hiking cycle is over. The Fed just raised rates in September, so it makes sense to take some time to assess the policy’s effects. Raising rates repeatedly to curb inflation could also put greater pressure on employment and economic growth.
December is the next date to watch
If oil prices keep rising and core goods inflation remains stubbornly high, the Fed may tighten policy again. In that case, U.S. stock valuations, gold, and Bitcoin could all come under pressure. What markets fear most isn’t that rates won’t be cut this time, but that the easing they’ve been expecting may remain out of reach.
DYOR
With the October 27–28 FOMC meeting approaching, the latest signals have shifted subtly. According to a survey, most economists expect the Fed to hold rates at 3.75%–4.00% this month, but many expect another rate hike in December.
Inflation is the biggest wildcard
U.S. CPI rose 3.7% year over year in September, up from 3.4% previously, while core CPI rose 2.6%. Gasoline prices jumped 9.1% in a single month, and energy costs are pushing inflation higher again.
My view is that a pause in October is still likely, but that doesn’t mean the rate-hiking cycle is over. The Fed just raised rates in September, so it makes sense to take some time to assess the policy’s effects. Raising rates repeatedly to curb inflation could also put greater pressure on employment and economic growth.
December is the next date to watch
If oil prices keep rising and core goods inflation remains stubbornly high, the Fed may tighten policy again. In that case, U.S. stock valuations, gold, and Bitcoin could all come under pressure. What markets fear most isn’t that rates won’t be cut this time, but that the easing they’ve been expecting may remain out of reach.
DYOR