A recent survey reveals a clear, yet subtly divergent, consensus within the economics community regarding the Federal Reserve's next interest rate path: the vast majority of respondents believe the Fed will maintain interest rates at its October meeting, followed by another rate hike in December. This assessment is noteworthy because it comes against the backdrop of a still-strong economy and persistently higher-than-target inflation. Policymakers have recently been signaling patience, seemingly favoring a slower, more cautious approach to interest rate adjustments, and markets and economists are largely following the Fed's communications rather than solely relying on economic data. Thus, a wait-and-see approach in October and action in December has become the prevailing expectation, but this expectation still harbors the upside risk of higher peak interest rates and more frequent rate hikes.

Survey findings: A wait-and-see approach became almost a consensus in October, while expectations for an interest rate hike in December surged.

According to the latest survey conducted from October 16th to 20th, 94% of the economists surveyed expect the Federal Reserve to maintain the federal funds rate in the range of 3.75% to 4.00% at its meeting on October 27th and 28th. This result is largely consistent with market pricing, meaning that holding rates steady in October is almost an overwhelming consensus. It is worth noting that this meeting is only a few days away from the November midterm elections, and the timing of policy is inherently politically sensitive. However, the survey results show that economists generally believe the Fed is more likely to choose to wait and see rather than further adjust interest rates before the election. In stark contrast to the October expectations, 100% of respondents expect the Fed to raise interest rates in December. This expectation represents a sharp reversal from the previous month's survey, where less than half of the economists expected a December rate hike. Previously, the Federal Open Market Committee unanimously agreed to raise interest rates by 25 basis points in September. In other words, in the collective judgment of economists, the Fed is not ending its rate hike cycle, but rather postponing the next action until the end of the year. This "pause and then proceed" approach reflects both policymakers' cautious assessment of the economic and inflation situation and indicates that the market is accepting the Federal Reserve's policy signals of patience and prudence.

Policy signals: Officials are inclined to be cautious, and the bond market is dominated by Fed communications.

Despite reports of a strong economy and higher-than-expected inflation, Federal Reserve officials have recently indicated a preference for a slower, more cautious interest rate path. Fed Chairman Kevin Warsh has made it clear he is not keen on providing guidance and has remained silent. This communication style makes it harder for markets to glean clear direction from the Chairman's statements, and has to some extent exacerbated the dominance of policy expectations in the bond market. Currently, markets and economists are following the Fed's messages rather than data. The Fed's recent confusing signals have exerted a strong influence on the bond market. This effect is particularly evident in the movement of Treasury yields. On October 7, due to rising inflation and increasing expectations of a near-term rate hike, longer-term US Treasury yields surged to multi-decade highs before falling nearly 25 basis points as the likelihood of an October rate hike diminished. The yield on the interest-rate-sensitive two-year US Treasury also initially rose before falling sharply. Alex Pelle, senior U.S. economist at Mizuho Securities, commented that with both a strong economy and inflation, there's really no reason to worry excessively about raising interest rates higher; it seems like the easiest option. Unfortunately, the Federal Reserve hasn't actually taken further control of the issue; they're just standing still, or perhaps even lagging behind. He also believes that from a policy perspective, the Fed's decision not to act in October was a mistake. He predicts the Fed will raise rates by 25 basis points in December, but the risk of ultimately raising rates by 50 basis points is greater than the risk of not raising rates at all.

Inflation and Growth: Stubborn Inflation Remains, AI Investment Supports Economic Resilience

Inflation has remained above the Federal Reserve's 2% target for nearly six consecutive years. The median survey data indicates that the Fed's preferred inflation gauge, the personal consumption expenditures price index, will remain more than 100 basis points above 2% in the coming quarters, and will not return to the target level until at least 2028. This means that the decline in inflation is not a short-term issue, but a structural challenge that could last for years. Meanwhile, economic growth has been relatively strong. The second quarter saw annualized growth of 2.2%, largely driven by investment in artificial intelligence. The survey projects 3.2% growth in the third quarter and a slowdown to 2.2% in the fourth quarter. On an annualized basis, economic growth is projected at 2.3% this year and 2.1% in 2027, both higher than the Fed's target of 2.0% for non-inflationary growth. UBS US economist Abigail Watt stated that much of the resilience in the US economy stems from the development of AI technology and more resilient spending, but this resilience may be more narrowly driven by high-income groups who benefit from the spillover effects of AI through the stock market. In other words, the supporting forces for economic growth are not evenly distributed, but rather concentrated in specific industries and income groups. This structure makes it more complicated for the Federal Reserve to assess the degree of economic overheating and inflationary pressures: on the one hand, strong growth and inflation above target require a more stringent response; on the other hand, policymakers are concerned that excessive tightening could pose unnecessary risks, and therefore tend to observe more patiently.

Peak Interest Rates and Upside Risks: The Probability of Two More Rate Hikes Increases

Regarding the peak of interest rates, nearly 60% of surveyed forecasters believe that the policy rate will peak in the 4.00% to 4.25% range. However, the survey also shows that among the remaining respondents who gave a clear judgment, 38 predict at least two more rate hikes, a significantly higher proportion than the one-fifth in the September survey. Michael Gapen, chief U.S. economist at Morgan Stanley, stated that the risk lies in the Fed ultimately needing to raise rates more than expected; if there are risks to the economic and inflation paths, these risks do indeed appear to be skewed to the upside. In other words, while the current mainstream expectation is a wait-and-see approach in October and a rate hike in December, the real risk is not that the Fed will completely stop raising rates, but that the final rate hike may exceed current market expectations. This upside risk is closely related to the inflation situation. Because inflation has been consistently above target and is likely to remain significantly above 2% in the coming quarters, the Fed is unlikely to easily announce a policy shift. The survey results therefore carry a dual meaning: on the one hand, economists almost unanimously believe that a rate hike will occur in December; on the other hand, disagreements remain regarding the endpoint and subsequent magnitude of rate hikes, and voices arguing that "more needs to be done" are growing stronger. Pelle's statement that "the risk of eventually raising interest rates by 50 basis points is greater than the risk of not raising rates at all" is a concentrated manifestation of this upside risk.

Politics and External Shocks: Cost of Living, Energy Prices, and Midterm Elections

Rising costs of living have become a key political weakness for Republicans ahead of the midterm elections, driven by increased energy costs due to President Trump's war with Iran and new tariffs on imported goods. With no signs of de-escalation in the war, oil prices remain above $100 a barrel. This means that inflationary pressures are driven not only by domestic economic demand and the labor market but also by geopolitical and trade policies. For the Federal Reserve, rising costs from energy prices and tariffs could slow the decline in inflation and increase the difficulty of policy communication. Overall, the survey paints a picture where the Fed is likely to hold rates steady in October but may raise them again in December; policymakers are inclined to be cautious, and the market is dominated by the Fed's communication signals; the economy remains resilient, supported by investments in artificial intelligence, but inflation remains stubbornly above target, with the cost of living, energy prices, and tariffs adding further complexity. While mainstream expectations are clear, the upside risks of higher peak interest rates and more frequent rate hikes are increasing. For investors and readers, the real concern is not just whether there will be a rate hike in October, but whether the Fed will be forced to act further after December by inflation and economic resilience.

Frequently Asked Questions

Q: Why do most economists predict the Fed will hold rates steady in October and raise them again in December? A: Surveys show that with the October meeting approaching the midterm elections, officials are inclined to be cautious, and the market has already priced in rates remaining at 3.75% to 4.00% in October; however, inflation has been above 2% for nearly six years, and all respondents expect a 25 basis point rate hike in December, making a wait-and-see approach the consensus. Q: Why is the Fed signaling patience, and even the chairman remaining silent? A: A strong economy and higher-than-expected inflation coexist, leading officials to prefer a slower, more cautious path; Chairman Kevin Warsh is not keen on providing guidance, and the resulting communication confusion has dominated the bond market, with investors following Fed information more than data. Q: What do the peak interest rate and the "need to do more" risks in the survey refer to? A: Nearly 60% predict a peak of 4.00% to 4.25%, but 38 people expect at least two more hikes, higher than last month; Morgan Stanley and others believe that economic and inflation risks are skewed to the upside, and the risk of a final 50 basis point rate hike is greater than no further hikes. Q: Why is inflation so stubborn, and when will it return to target? A: PCE will remain more than 100 basis points above 2% for the next few quarters, and will not return to the target until at least 2028; energy inflation is slowing due to high costs of living caused by the Trump-Iran war and new tariffs. Q: How do politics and AI investment affect the policy background? A: Cost of living is a weakness for Republicans ahead of the midterm elections, and oil prices are above $100; second-quarter growth of 2.2% and a projected 3.2% growth in the third quarter are boosted by AI investment, but the resilience may be concentrated in high-income groups, increasing the difficulty of policy judgment.