Fed preview: Experts see a pause today, not the end of hikes
28 OCT, 2026
By Joanna Piwko from RankiaPro Europe
The Federal Reserve is widely expected to keep rates unchanged today, 28 October, at the close of its two-day meeting, but the pause is unlikely to mark the end of the tightening cycle.
Tiffany Wilding, Economist at PIMCO, Raphael Olszyna-Marzys, International Economist at J. Safra Sarasin, James Bilson, Global Fixed Income Strategist at Schroders, and Jeffrey Cleveland, Chief Economist at Payden & Rygel, all see policy staying restrictive. According to J. Safra Sarasin, bond markets attach just a 15% probability to a hike this week.
A pause that is still a recalibration
With no new economic projections due at this meeting, Wilding argues the decision itself will matter less than three questions: how Chair Kevin Warsh frames the hold, whether the FOMC still sees September's move as a risk-management adjustment, and how many members dissent in favour of a hike.
We expect the FOMC to keep rates in the 3.75%-4.0% range, while retaining a clear tightening bias. The most likely next move is a 25 basis point rate hike in December. We see both the September hike and the outlook for the overall rate path as a recalibration, with one or two additional hikes still to come that would, in practice, reverse last year's cuts.
Tiffany Wilding, Economist, PIMCO
PIMCO flags Beth Hammack, Lorie Logan and Neel Kashkari as possible dissenters, as they voted for a hike in July, although even their projections point to a moderate adjustment rather than a full hiking cycle. The cautious approach echoes what markets expected from Warsh at the July Fed meeting.
Olszyna-Marzys traces the caution to recent comments by John Williams, Philip Jefferson and Christopher Waller, who have suggested further hikes will probably be needed but without any rush. Financial conditions have also tightened since September, with higher bond yields, wider credit spreads and renewed pressure on equities.
We also expect the Fed to proceed gradually. It wants to observe a series of data before acting again. With market inflation expectations well anchored, it does not need to rush as it did in 2022. Its strategy is instead to raise rates gradually until evidence of a slowdown in demand emerges.
Raphael Olszyna-Marzys, International Economist, J. Safra Sarasin
Inflation and the AI boom keep the tightening bias alive
Growth is the main reason the Fed cannot relax. Cleveland notes that US GDP is on track to expand by 3.4% in the third quarter, with non-residential fixed investment contributing 1.6 percentage points, almost half of the total increase.
The Fed will have to contend with inflation that remains above target: the figure to watch, in particular, is core PCE, which has deviated from the Fed's target for 66 consecutive months. Even if the central bank can wait before acting again, the persistence of this dynamic makes it harder to envisage a rapid easing of monetary conditions.
Jeffrey Cleveland, Chief Economist, Payden & Rygel
Wilding links much of this strength to artificial intelligence, which is boosting domestic demand through investment and the wealth effect. Yet she sees several factors supporting a gradual path: the high import content of AI spending, more labour market slack than the unemployment rate suggests, and investment outside AI that is already contracting.
Inflation remains elevated, but it is not accelerating.
Tiffany Wilding, Economist, PIMCO
Bilson agrees that tightening is justified, with core inflation measures running at around 2.2%-3%, but sees reasons to expect an improvement in the first half of 2027 as the impact of tariffs and other temporary pressures fades.
In the short term, persistent inflation in the services sector will force the Fed to keep raising rates, but an improving outlook for 2027 would help limit the size of the final cycle.
James Bilson, Global Fixed Income Strategist, Schroders
Where rates and bond markets could go next
On the endpoint of the cycle, J. Safra Sarasin expects a December hike followed by three quarterly increases next year, which would take the Fed Funds rate to 4.75%-5.0% by the third quarter of 2027, closer to the levels implied by Taylor rules.
| Expert | October meeting | Path ahead |
|---|---|---|
| Tiffany Wilding, PIMCO | Hold at 3.75%-4.0% | 25 bp hike in December; one or two further hikes in total |
| Raphael Olszyna-Marzys, J. Safra Sarasin | No hike | December hike, then three quarterly hikes to 4.75%-5.0% by Q3 2027 |
| James Bilson, Schroders | Not specified | Further hikes in an "adjustment cycle", limited by a better 2027 outlook |
| Jeffrey Cleveland, Payden & Rygel | Fed can wait before acting again | Rates elevated for longer; normalisation could be slower than expected |
For bond investors, Bilson keeps a neutral stance on US Treasuries: the hiking cycle is largely priced in and 10-year yields above 5% offer an attractive return, but strong growth and above-target inflation leave little room for outperformance. Schroders also remains cautious on US credit, where valuations have adjusted less.
Cleveland attributes this year's rise in yields to higher real rates and a larger term premium, fuelled by government funding needs and AI-related issuance. He sees concerns over hyperscaler bonds as partly overdone: they account for an estimated 20% of this year's bond issuance but just 2% of US non-financial corporate debt.
Rate normalisation, if confirmed, could prove slower than expected.
Jeffrey Cleveland, Chief Economist, Payden & Rygel
