The Fed is expected to hold rates on 28 October, despite oil

What markets expect

The Federal Reserve announces its next decision on 28 October. Markets widely expect it to keep its target range at 3.75–4.00%. Futures prices put the chance of a rate rise at about 5%, down from 15% earlier this week and 37% at the end of September.

The Fed raised rates in September for the first time since 2023, after inflation climbed back to 3.7%.

Why expectations fell

Two forces are pulling in opposite directions, and for now the second is winning.

• Oil pushes inflation up. Brent is above $115. On its own, that argues for keeping rates high or raising them.
• Risks to growth are rising. A sharp sell-off in technology shares, worries about the cost of financing AI investment, and the drag from expensive energy all point to slower growth. A central bank is cautious about tightening into a slowdown.

Core inflation also matters. At 2.6% in September, it shows that much of the rise in prices comes from energy. That gives the Fed room to wait and see whether the oil shock spreads.

Where it sits in the chain

This is link 3, the expected path of rates. Notice that it moved a long way without the Fed doing anything: the odds of a hike fell from 37% to 5% in under a month. Bond yields followed. The 10-year Treasury yield ended the week just below 5%, after peaking near 5.3% in early October.

What to watch

• The Fed’s statement: whether it calls the oil shock temporary, or flags the risk that it raises inflation expectations.
• Any change in its guidance for December.