SKN | Economists Expect December Fed Rate Hike as Persistent Inflation Raises Policy Risks

All 100 economists surveyed by Reuters between October 16 and 20 expected the Federal Reserve to raise interest rates in December, while 94 anticipated no change at the October 27–28 meeting, leaving the federal funds rate at 3.75%–4.00%.

Nearly 60% of respondents expected the policy rate to peak at 4.00%–4.25%, while 38 of 92 economists anticipated at least two additional increases, reflecting growing concern about persistent inflation.

Poll medians indicated that the Personal Consumption Expenditures Price Index would remain more than one percentage point above the Fed’s 2% target over coming quarters, with inflation not returning to target until at least 2028.

The Public Assumption

The Federal Reserve is widely expected to leave interest rates unchanged at its October 27–28 meeting, but expectations for a further increase in December have shifted sharply.

In a Reuters poll conducted from October 16 to 20, all 100 economists surveyed anticipated a December rate hike. That marked a significant change from September, when fewer than half expected another increase.

For the October meeting, 94 of the 100 respondents forecast no change to the federal funds rate, which stands at 3.75%–4.00% following a unanimous 25-basis-point increase in September.

The change in expectations reflects the challenge facing policymakers as economic activity remains firm while inflation continues to exceed the central bank’s target. Although officials have signaled a measured approach to further tightening, the survey suggests economists increasingly see another increase as necessary.

The Economic Breakdown

Expectations for the eventual peak in interest rates have also moved higher. Nearly 60% of economists surveyed expected the policy rate to reach 4.00%–4.25%. Among 92 respondents asked about the possibility of multiple additional increases, 38 forecast at least two, compared with approximately one-fifth in the September survey.

The inflation outlook helps explain the shift. The poll’s median forecasts indicated that the Personal Consumption Expenditures Price Index, the Fed’s preferred inflation measure, would remain more than 100 basis points above the 2% target over the coming quarters. A return to target was not expected before 2028.

Energy costs and tariffs were identified as additional sources of price pressure. Oil prices remained above $100 per barrel amid higher energy costs associated with the U.S.-Israeli war with Iran, while new tariffs on imported goods added to inflation concerns.

Economic growth has also remained relatively resilient. The U.S. economy expanded at an annualized rate of 2.2% in the second quarter, with growth forecast to accelerate to 3.2% in the third quarter before slowing to 2.2% in the final three months of the year.

Economists expected annual growth of 2.3% in 2026 and 2.1% in 2027, both above the 2.0% pace the Fed considers consistent with its non-inflationary growth benchmark.

The Hidden Picture

The central policy tension is whether inflation will ease without requiring a more restrictive monetary stance. Stronger economic activity can support employment and spending, but sustained demand alongside persistent price pressures may limit the Fed’s ability to reduce inflation without further tightening.

Alex Pelle, senior U.S. economist at Mizuho Securities, argued that the combination of a strong economy and elevated inflation supports further rate increases. Michael Gapen, chief U.S. economist at Morgan Stanley, similarly warned that the risks around the economic and inflation outlook were tilted toward a need for more tightening than currently expected.

These views reflect concerns among economists rather than a confirmed decision by the Federal Reserve. The survey measures expectations, and the source does not establish that policymakers have committed to a December increase.

For borrowers and financial markets, the distinction between an unchanged October rate and a higher expected future rate remains important. Mortgage, business borrowing and other financing costs can respond to expectations about the future policy path, even before the Fed makes its next decision. However, the source does not quantify the potential effect on individual borrowing rates or asset prices.

Closing

The Reuters survey points to a growing expectation that persistent inflation and resilient growth could prompt another rate increase in December, despite the anticipated pause in October. The outcome will depend on how the inflation and economic data evolve and how policymakers assess the need for further restraint.

Will inflation remain persistent enough to push the Federal Reserve toward additional rate increases, or will economic growth slow sufficiently to change the expected policy path?