Fed Expected to Hold Rates in October, but Most Economists See Hikes Ahead

In brief

• Consumer prices rose in September, bringing the annual inflation rate to 3.7% from 3.4% in August .
• A survey of 30 fund managers, strategists, and economists conducted by CNBC shows that 93% anticipate a pause at this week's Federal Reserve meeting, while 76% predict a rate increase at the subsequent meeting in December .
• More than half of those surveyed forecast that the Fed will raise rates next year by an average of about two increments .
• The Fed last raised rates by 25 basis points in September to tackle stubbornly high inflation .

Fed Expected to Pause This Week

Policymakers in Washington are scheduled to meet before the midterm elections on Tuesday. Officials have indicated a preference for monitoring how financial conditions change before taking further action (Fed expected to hold interest rates steady as inflation tops midterm voters’ concerns – NBCNews.com). The central bank increased rates last month, marking the first such move since 2023, following a period in which monthly inflation readings consistently surpassed the 2% target (Fed set to hold interest rates steady in last decision before midterms – The Guardian).

Inflation Remains the Central Problem

Consumer prices increased again in September, pushing the annual inflation rate to 3.7% from 3.4% in August (Federal Reserve is likely to hold interest rates steady in October. Here's what that means for consumers – CNBC). Inflationary pressure is also rising due to energy costs. Brent crude oil reached a five-month high at the end of last week, linked to the conflict with Iran. The 25-basis-point rate increase was a response to inflation that has stayed above the Fed's target for several years, and for most of this year the annual rate has been above 3%.

Forecasters Expect More Hikes

In addition, more than half of respondents project that the Fed will raise rates by about two steps on average next year (Fed rate hikes are coming, but not this week: CNBC survey – CNBC). Krishna Guha, an economist at Evercore ISI, said that the current approach, in which Chair Kevin Warsh prefers to steer decisions by market data rather than issue clear guidance, introduces "material execution risk" (Fed expected to hold rates steady, but Warsh may point way to more hikes – CNBC).

What It Means for Borrowers

Higher benchmark interest rates raise the cost of various forms of credit, including mortgages, credit cards and some savings accounts. For households already facing higher living costs, any further rate increase in December is likely to keep loan payments high into next year.