Fed to skip October but raise rates again in December, nearly all economists say

By Daily American Press Newsroom, Economy Desk — Published October 23, 2026

Key Takeaways
The Background & Context
Why This Matters
Reactions & Analysis
What Happens Next
Frequently Asked Questions

The Federal Reserve appears poised to hold interest rates steady next month before delivering another hike before year’s end, according to a broad consensus among economic forecasters. The expected decision to skip October while raising rates in December reflects the central bank’s delicate balancing act as it tries to tame stubborn inflation without tipping the economy into recession. Wall Street and Main Street alike are bracing for what could be the final chapter in one of the most aggressive monetary tightening campaigns in modern American history.

Nearly all economists surveyed anticipate the Fed will pause at its October meeting, giving policymakers time to assess how previous rate increases have filtered through the economy. But that breather won’t last long. The same experts predict another quarter-point increase when the Federal Open Market Committee gathers in December, pushing borrowing costs to levels not seen in more than two decades.

This two-step approach—pause, then raise—underscores the persistent challenge facing Fed Chair Jerome Powell and his colleagues. Inflation has cooled from its scorching 2022 peaks, yet remains well above the central bank’s 2 percent target. Meanwhile, the jobs market continues to show surprising resilience, complicating the Fed’s calculus about when to declare victory and step back.

Key Takeaways

Overwhelming majority of economists expect the Federal Reserve to hold rates steady at its October policy meeting
Nearly all forecasters predict another rate increase in December, extending the central bank’s inflation-fighting campaign
The skip-then-raise strategy reflects Fed efforts to balance persistent inflation against risks of economic slowdown
Interest rates could reach their highest levels in over 20 years if December hike materializes as expected
Decision comes as policymakers weigh stubborn price pressures against a labor market that refuses to cool significantly
The timing puts the final 2023 rate decision just weeks before the new year and the start of the presidential election cycle

The Background & Context

The Federal Reserve embarked on its current rate-hiking cycle in March 2022, responding to inflation that had surged to 40-year highs. What began with a modest quarter-point increase quickly escalated into one of the most rapid tightening campaigns in central banking history. By summer 2023, the Fed had raised its benchmark rate from near zero to above 5 percent, dramatically reshaping borrowing costs across the economy.

Each increase ripples outward. Mortgage rates climbed above 7 percent, their highest since 2002. Credit card interest charges soared. Business loans became more expensive. Auto financing costs jumped. The Fed’s theory: make money more expensive to borrow, and people will spend less, businesses will invest less cautiously, and demand will cool enough to bring prices down.

It worked, to a degree. Inflation has fallen substantially from its June 2022 peak of 9.1 percent. But progress has been uneven and slower than hoped. Core inflation—which strips out volatile food and energy prices—remains sticky, hovering around 4 percent. That’s double the Fed’s comfort zone.

Complicating matters is the job market’s stubborn strength. Unemployment sits near historic lows. Employers added hundreds of thousands of jobs in recent months. Wage growth, while moderating, continues at a pace that makes Fed officials nervous about a wage-price spiral. This resilience defies predictions that higher rates would quickly cool hiring.

The skip-then-raise pattern isn’t new for this Fed. Earlier in 2023, policymakers paused in June before resuming hikes in July. That approach bought time to evaluate economic data without surrendering the fight against inflation. Now economists expect a similar playbook as the year winds down.

Why This Matters

For ordinary Americans, the Fed’s decisions translate directly into pocketbook issues. Higher interest rates mean steeper costs for mortgages, making homeownership less affordable for millions. First-time buyers face particular hardship, priced out of markets where monthly payments have doubled in two years. Renters find no relief either, as landlords pass along their own higher financing costs.

Small business owners confront tougher choices about expansion and hiring. A restaurant considering a second location must weigh whether loan payments will eat too deeply into profits. A manufacturer eyeing new equipment faces calculations that didn’t pencil out two years ago. These micro-decisions accumulate into macro-economic consequences.

Savers, conversely, finally see meaningful returns after years of near-zero yields. High-yield savings accounts now offer 5 percent or more. Certificates of deposit pay rates unseen since before the 2008 financial crisis. Retirees and conservative investors benefit from this shift, though it comes alongside market volatility that has battered stock portfolios.

The broader economic stakes are enormous. Push too hard, and the Fed risks triggering the recession it’s trying to avoid. Pull back too soon, and inflation could reignite, forcing even more painful measures later. This tightrope walk affects employment, growth, and America’s global economic standing.

Political dimensions loom as well. With presidential primaries approaching, economic conditions will dominate voter concerns. High interest rates fuel criticism that the Fed is choking growth unnecessarily. Persistent inflation invites attacks that policymakers haven’t done enough. Powell and his colleagues insist they ignore political pressure, but they can’t escape the calendar.

Reactions & Analysis

The near-unanimous economist consensus reflects both Fed communication and economic reality. Central bank officials have signaled their intention to keep rates higher for longer, abandoning earlier hopes for quick cuts in 2024. Recent speeches by Fed governors emphasize vigilance against inflation, even as they acknowledge progress made.

Financial markets have largely priced in the skip-and-raise scenario. Treasury yields reflect expectations of sustained high rates well into next year. Stock investors oscillate between relief at potential pauses and anxiety about continued tightening. The volatility underscores uncertainty about how much more the economy can withstand.

Business leaders express growing concern about the cumulative weight of higher borrowing costs. Trade associations warn that sustained high rates could finally crack the labor market, turning today’s worker shortage into tomorrow’s unemployment crisis. Others argue the economy has proven more resilient than pessimists predicted and can handle further modest increases.

Consumer sentiment remains fragile. Polls show Americans deeply unhappy with economic conditions despite strong employment numbers. High prices at the grocery store and gas pump overshadow abstract discussions of monetary policy. For many households, the Fed’s inflation fight feels like a distant concern compared to immediate budget pressures.

International observers watch closely as well. The Fed’s actions influence global capital flows, currency values, and economic conditions worldwide. Emerging markets particularly feel the squeeze when U.S. rates rise, as investment dollars flow toward safer American assets. The interconnected nature of modern finance means the Fed’s December decision will reverberate far beyond U.S. borders.

What Happens Next

The October meeting will serve as a critical checkpoint. Fed officials will scrutinize employment reports, inflation data, and GDP figures released in coming weeks. Any significant surprises could alter the expected trajectory, though economists see the skip-then-raise path as highly probable barring major shocks.

December’s anticipated increase might mark the end of this tightening cycle. Many forecasters believe the Fed will then hold rates steady through much of 2024, waiting to see full effects of cumulative hikes. The lag between rate changes and their economic impact means actions taken now won’t fully manifest for months.

Rate cuts remain a 2024 question mark. Some analysts predict modest reductions in the second half of next year if inflation continues declining and unemployment rises. Others warn that premature cuts could repeat mistakes of the 1970s, when the Fed eased too soon and inflation roared back. This debate will intensify as the new year approaches.

For households and businesses, the message is clear: plan for higher borrowing costs to persist. Anyone considering major financial decisions—buying a home, refinancing debt, making capital investments—should assume today’s rate environment won’t change quickly. The era of cheap money is over, at least for now.

The Fed’s credibility hangs in the balance. Success means engineering a soft landing: inflation returns to target without triggering severe recession. Failure means either runaway prices or mass unemployment. History suggests this needle is extraordinarily difficult to thread. The next few months will reveal whether this Fed can pull it off.

Frequently Asked Questions

Why would the Fed skip October but raise rates in December?

The pause in October allows policymakers to evaluate recent economic data and assess whether previous rate increases are working as intended. By December, they’ll have additional information about inflation trends, employment, and holiday spending patterns. This approach provides flexibility while maintaining pressure on inflation. It also signals that the Fed isn’t rushing to declare victory prematurely, keeping options open based on evolving conditions.

How high could interest rates go if the Fed raises again in December?

A December increase would likely push the federal funds rate to a range of 5.50 to 5.75 percent, the highest level since 2001. This benchmark rate influences borrowing costs throughout the economy, from mortgages to business loans. The exact peak depends on how inflation and employment data evolve in coming months. Some economists believe December could mark the cycle’s end, while others see potential for rates to climb even higher if price pressures persist.

What does this mean for mortgage rates and home buyers?

Mortgage rates will likely remain elevated, potentially climbing further if the Fed raises rates in December. Thirty-year fixed mortgages have already topped 7 percent, more than double their pandemic-era lows. Higher Fed rates don’t directly set mortgage rates, but they influence the broader interest rate environment. Prospective home buyers should expect affordability challenges to continue, with monthly payments significantly higher than just two years ago. Refinancing existing mortgages also remains unattractive for most homeowners.

Could the Fed change course if economic conditions shift dramatically?

Absolutely. The Fed bases decisions on incoming data, not predetermined schedules. If unemployment suddenly spikes, financial markets experience severe stress, or inflation drops faster than expected, policymakers could abandon the skip-and-raise plan. Conversely, unexpectedly strong inflation could prompt action in October despite current expectations. The economist consensus reflects probabilities based on current trends, not certainties. Fed officials repeatedly emphasize their data-dependent approach and willingness to adjust as circumstances warrant.

As autumn progresses toward winter, the Federal Reserve’s next moves will shape economic conditions for millions of Americans. The expected October pause followed by a December increase represents careful calibration in uncertain times. Whether this strategy successfully brings inflation to heel without breaking the economy remains the defining question of this monetary policy era. The answer will unfold in the months ahead, with consequences reaching into every corner of American economic life.