Fed Seen Holding at 3.75%–4.00% Despite Hotter Inflation

The Federal Reserve is widely expected to keep its federal funds target range at 3.75%–4.00% at this week’s policy meeting, with rate futures assigning roughly a 90% probability to no change as of last Friday. The expected pause comes despite inflation data that point to continued price pressures. September CPI rose 3.7% year on year, while PPI increased 1.3% month on month. Economists expect the September PCE price index, due Thursday, to rise 3.6% year on year, up from 3.4% in August and still above the Fed’s 2% target. Treasury-market volatility is a central factor in the policy debate. After the Fed’s September 25-basis-point increase, the 10-year Treasury yield moved above 5% and briefly exceeded 5.3%, its highest level in 24 years. It then fell about 19 basis points to 4.95% in one day last Thursday, the largest one-day decline since March 2023. The post-decision focus is likely to shift to the Fed’s December policy path, alongside the preliminary third-quarter GDP release and September PCE data. Officials remain divided on further tightening, with Dallas Fed President Logan calling for at least another 50 basis points, while some economists expect a December increase.