The Federal Reserve held interest rates steady last week, and the market debate has now moved from what the central bank did to what the next two data releases will say. With the target range kept at 3.75 percent to 4 percent, traders and economists are treating the October jobs report and the October inflation report as the deciding evidence for December.
The October decision itself was a 10 to 2 vote, with Governor Lisa Cook and Cleveland Fed President Beth Hammack preferring an immediate quarter point rise. Chair Kevin Warsh declined to commit to a December move, describing the stretch before the meeting as an information rich interval. That wording is the key to the current market: the committee has left itself room to move, but it has not promised to use it.
The December rate decision will be shaped by the jobs report due on November 6 and the inflation report due on November 10, ahead of the December 8 to 9 meeting. A cooler set of numbers could pull market odds down from their current elevated levels, while another hot set could push them toward certainty. Futures pricing reported late last week put a December quarter point rise at roughly three in four, after briefly touching higher levels immediately after the October decision.
What the data already shows
Recent releases give both hawks and doves something to cite. September PCE inflation, the Fed’s preferred gauge, rose to 3.6 percent from 3.4 percent, with core PCE at 3.1 percent, while consumer inflation for September came in at 3.7 percent from a year earlier. Third quarter growth was reported at a 3.4 percent pace, and the Fed’s statement upgraded its description of activity to expanding at a strong pace, while repeating that inflation remains elevated.
Energy prices are a large part of the inflation story. Petrol prices rose sharply in September, accounting for more than half of the monthly increase in consumer prices, and fuel oil and energy costs are sharply higher than a year ago, according to reports linking the move in part to the conflict affecting Iran. At the same time, officials have pointed to heavy investment in artificial intelligence infrastructure as a driver of growth that is not matched by broad job creation, with unemployment steady at 4.2 percent.
Why the dissents matter
The two dissents matter because they show the committee is not settled. When two policymakers vote for a rise at the meeting where the majority holds, the market reads the hold as a pause rather than a stop. Some analysts have argued that other officials who voted with the majority may also favour a December rise, which would explain why futures moved toward a hike even as Warsh refused to precommit.
None of that is a promise. Market prices are bets, not forecasts, and they have moved in both directions in the past week as each new release arrived. For households and businesses, the practical point is narrower: borrowing costs are unlikely to fall before December, and the next two reports will decide whether they rise once more before the year ends.
