The Federal Reserve’s policy committee meets on Tuesday and Wednesday, October 27–28, and for the first time in years, markets are seriously debating a second consecutive rate increase. After lifting rates to 3.75%–4% in September, Chair Kevin Warsh and colleagues must decide whether September’s hot inflation report and triple-digit oil prices justify moving again.
What we know going in
- September CPI: 3.7% year over year; core CPI 2.6%.
- Oil: WTI above $100 and Brent near $110 in mid-October.
- After the CPI release, markets priced roughly even odds of an October hike.
The case for a hike
Inflation has moved in the wrong direction for several months, and core inflation — which excludes food and energy — ticked up to 2.6%, suggesting fuel costs are spreading to other prices. Officials’ September projections already pointed to year-end rates between roughly 4.1% and 4.4%, implying at least one more increase. Acting sooner could reinforce the Fed’s credibility and keep inflation expectations anchored.
The case for waiting
Higher energy prices act like a tax on consumers and could slow spending on their own. The IMF has cut its global growth outlook, and long-term Treasury yields have already risen to their highest since 2002, tightening financial conditions without any Fed action. Doves argue that waiting until December 8–9 would give the committee more data on whether the energy shock is fading or spreading.
The Fed’s dilemma: hike into a supply shock and risk a slowdown, or hold and risk inflation becoming entrenched.
Warsh’s new playbook
Warsh has signalled a “new chapter” for the Fed with less forward guidance, which makes each meeting less predictable. Expect the post-meeting statement and press conference to focus on energy pass-through, wage growth and the health of the labour market.
What it means for you
- Borrowers: Credit card and variable-rate loan costs would rise within weeks of a hike.
- Savers: Yields on savings accounts and Treasury bills would edge higher.
- Homebuyers: Mortgage rates follow long-term yields, which are already elevated.
We will cover the decision on Wednesday afternoon (US Eastern time) in our Business section.