Economists Expect Federal Reserve to Raise Rates in December
A Reuters survey conducted from October 16 to 20 shows that all 100 economists expect the Federal Reserve to raise rates in December.
Ninety-four economists expect the Federal Open Market Committee meeting on October 27-28 to maintain the federal funds rate in the range of 3.75% to 4.00%, consistent with current market pricing. This meeting is just days before the U.S. midterm elections in November.
All 100 respondents expect a rate hike in December, a sharp reversal from less than half in last month's survey. The Federal Reserve unanimously approved a 25 basis point rate hike in September, raising the rate range to 3.75%-4.00%, marking the first rate hike since 2023.
Alex Pelle, senior U.S. economist at Mizuho Securities, stated that the economy remains strong and inflation is rising, and that not raising rates in October would be a policy mistake. He expects a 25 basis point hike in December, but believes the risk of a 50 basis point hike is greater than that of no hike.
Nearly 60% of forecasters believe the peak policy rate will fall in the range of 4.00%-4.25%, with 38 out of 92 predicting at least two more rate hikes, a significant increase from about one-fifth in the September survey. Michael Gapen, chief U.S. economist at Morgan Stanley, noted that the risks lean towards the Fed needing to raise rates beyond current expectations.
Driven by events, interest rate futures have priced in a high probability of a rate hike in December, with funds shifting from short-term interest rate derivatives and growth-oriented risk assets to higher-yielding bonds and dollar assets, benefiting financial stocks while putting pressure on high-valuation tech stocks.
The consumer price index rose 3.7% year-on-year in September, with core CPI at 2.6%. The surge in gasoline prices contributed to more than half of the monthly increase, and inflation has remained above the Fed's 2% target for nearly six years.
Source: Public Information
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The Federal Reserve implemented its first rate hike since 2023 in September 2026 under new Chairman Kevin Warsh, who has clearly abandoned forward guidance and emphasizes data-driven decisions without pre-judging meeting outcomes, a style that continued in his statements in October in Bangkok.
On the capital front, rate hike expectations are driving funds from AI-related growth stocks and risk assets into short-term government bonds and dollar deposits. Warsh has repeatedly mentioned that the AI investment boom has led to demand shocks that push up inflation, forcing policy tightening to suppress prices rather than continuing to ease support for investment expansion.
Comparing to the rapid rate hike cycle of 2022-2023, when the Fed raised rates significantly to combat high inflation and eventually shifted to rate cuts after economic slowdown; currently, we are in a phase of tightening after expansion, similar to historical instances of recurring inflation where policies shifted back to restrictive ranges.
Essentially, this is a transfer of pricing power: the market previously priced in a path of easing, but is now forced to accept higher terminal rates due to persistent inflation data. The mechanism is driven by data dependence and the political window (pausing before elections), making the policy rhythm dominated by inflation stickiness rather than a single employment indicator.
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- Rate hikes are not an end, but a confirmation of inflation stickiness in pricing.
- Market consensus shifts, and fund flows are immediately reassessed.
- Data determines the rhythm, while the political window only alters timing.