Federal Reserve expected to hike interest rates in October as inflation fight intensifies

The Federal Reserve just raised interest rates for the first time in three years, and Wall Street is already pricing in more pain. After the FOMC unanimously voted to lift the federal funds target range by 25 basis points to 3.75%-4.00% on September 16, major banks are now lining up behind the expectation that October will bring another hike.

Goldman Sachs projects a 25 basis point increase at the October 27-28 FOMC meeting. Bank of America is even more aggressive, forecasting hikes at both the October and December meetings.

What the data says

Market-implied probabilities currently put the odds of an October rate hike somewhere between 45% and 53%. The December meeting, scheduled for December 8-9, carries much stronger odds, with probabilities ranging from 70% to 89%.

The September decision wasn’t a squeaker. All 12 voting members backed the hike, and 16 of 18 Fed officials project at least one more increase before the year ends. The median year-end rate forecast sits at 4.1%, which implies the committee broadly agrees that rates need to go higher from here.

Fed Chair Kevin Warsh framed the move as necessary urgency. The central bank’s 2% inflation target remains the North Star, and persistent price pressures from global supply chain disruptions and robust domestic demand, particularly in the technology sector, have made the path back to that target longer than anyone hoped.

Why this pivot matters

Treasury yields have already started climbing in response. Equity markets are experiencing heightened volatility as investors recalibrate their expectations for where rates will land heading into 2027.

Bank of America’s call for consecutive hikes in October and December represents the most hawkish stance among major Wall Street institutions. If that forecast proves correct, the federal funds rate would end 2026 at 4.25%-4.50%.

Broader market implications

The October meeting on the 27th and 28th won’t include updated economic projections, which means the committee will be making its decision based on incoming data between now and then without formally revising its outlook. The December 8-9 meeting, by contrast, will feature fresh projections that could reshape the market’s understanding of where the Fed thinks rates need to go in 2027 and beyond.