Key Points

• 94 economists expect the Fed to keep interest rates unchanged in October
• All 100 respondents expect another interest rate hike in December.
• Persistent inflation has strengthened expectations for tighter monetary policies.

Due to ongoing inflation, the policy prospects for this central bank have become more complex. The market generally expects the Federal Reserve to keep interest rates unchanged at its meeting on October 27-28, but economists now almost unanimously believe that there will be another interest rate hike in December.

A survey conducted by Reuters from October 16 to 20 showed that 94 out of 100 economists expect the Federal Reserve to keep the benchmark interest rate unchanged at 3.75% to 4.00% this month.

What is more noteworthy is that all 100 respondents predicted an interest rate hike in December, whereas in the previous survey, this proportion was less than half. With stronger inflation data and the resurgence of pressure on energy prices, market expectations have changed significantly.

October interest rate decision: The likelihood of no change is increasing

The Federal Reserve raised interest rates by 25 basis points in September, marking the first rate hike since 2023, with policymakers aiming to address ongoing price pressures at that time.

Nevertheless, inflation remains consistently above the Federal Reserve's target of 2%.

In September, the Consumer Price Index ( CPI ) rose by 3.7% year-on-year, higher than the 3.4% in August. The latest CPI report shows that monthly inflation accelerated to 0.6%, with rising energy costs being one of the main driving factors.

At the same time, producer prices in September rose by 6.3% year-on-year, indicating that businesses are also facing considerable cost pressures.

However, Federal Reserve officials seem reluctant to raise borrowing costs at two consecutive meetings without examining more economic data.

New York Fed Chair John Williams ( John Williams ) stated that further tightening of policy may be necessary, but he does not see an urgency to act immediately.

The resolution in October also coincided with the eve of the U.S. mid-term elections in November, however, the Federal Reserve's monetary policy focus remains on inflation and employment, rather than the election results.

December interest rate hike expectations are in agreement

The outlook for December has clearly changed.

All economists surveyed by Reuters expect the Federal Reserve to raise interest rates again at its meeting on December 8-9. Nearly 60% of respondents anticipate that policy rates will rise to a peak range of 4.00% to 4.25%, while others believe that further tightening is possible.

These expectations reflect that inflation may remain high for a longer period than policymakers had previously anticipated.

Rising oil prices are an important factor. Recent increases in energy and transportation costs have exacerbated market concerns about inflation spreading to a broader range of economic sectors.

Federal Reserve Chairman Kevin Warsh ( Kevin Warsh ) also pointed out that the boom in artificial intelligence investment may temporarily increase the demand for capital, electricity, and infrastructure before any improvement in productivity is seen.

The economic impact is not limited to the borrowing costs of enterprises.

Higher policy interest rates will increase the attractiveness of interest-bearing investments and put pressure on asset valuations, especially since the yield on U.S. Treasury bonds is already at a high level.

What does the Fed's next move mean for Bitcoin and the stock market?

The financial market's expected inaction in October may not provoke as strong a reaction as the accompanying statements regarding December from the Federal Reserve.

For Bitcoin and other cryptocurrencies, ongoing expectations of interest rate hikes may pose a challenge, as this would support bond yields and weaken the demand for speculative investments.

Recent Bitcoin price analysis has regarded the October meeting as an important catalyst, and investors are weighing the possibility of renewed volatility.

The bond market presents another layer of challenge. Even if the Federal Reserve remains inactive, long-term yields may continue to rise as investors re-evaluate inflation and future government borrowing needs.

Coinpaper's analysis of U.S. Treasury yield curves indicates that this difference helps to explain why the benchmark interest rate remains unchanged, and it does not mean that the financial environment will become more accommodative.

For now, it seems that taking no action in October is the consensus. The bigger question is whether subsequent inflation data will further reinforce the expectation of a rate hike in December, or whether it will force economists to readjust their forecasts.