Will the Fed Hold Interest Rates Steady at October Meeting?

CaixaBank Research expects the U.S. Federal Reserve to keep interest rates unchanged at a range of 3.75% to 4.00% during its meeting on October 27 and 28, following a 25 basis point hike in September.

In a report published Wednesday, the research unit stated that the pause does not reflect an improvement in inflation expectations, as September consumer price and producer price data were unfavorable, and risks remain elevated. It added that the labor market and consumer spending showed signs of slowing, and financial conditions have tightened further since the end of August, reducing the urgent need for additional monetary tightening.

It noted that interest rate futures are pricing in a pause with a probability of nearly 85%, compared to 60% following the release of September inflation data. CaixaBank expects another 25 basis point rate hike in December, bringing the target range to 4.00% to 4.25%, with the Federal Reserve maintaining a hawkish stance as inflation remains above target.

It said the U.S. economy continues to grow at a robust pace supported by investment, and that October's decision represents a tactical pause within a tightening cycle that is not yet over. Estimates from the Atlanta and New York Federal Reserve banks indicate third-quarter GDP growth of around 3% annualized, while headline inflation remained at 3.7% in September.

What Do These Terms Mean?

Basis Point: A small unit of measurement for interest rates, where 100 basis points equal 1%.

Federal Funds Rate: The target range set by the U.S. Federal Reserve for the interest rate at which commercial banks lend to one another overnight, influencing borrowing costs worldwide.

Interest Rate Futures: Financial contracts where investors agree on a future interest rate, used to gauge market expectations regarding central bank decisions.