• KResearch expects the Federal Reserve (Fed) to maintain its policy rate at 3.75–4.00 percent at its October 27–28, 2026 meeting, following a 0.25-percent rate hike in September. Rising US Treasury yields, particularly at the longer end of the curve, may reduce the need for further near-term policy rate increases. Meanwhile, the US labor market has begun to show signs of slowing, although it has not yet contracted sharply. Nevertheless, inflationary pressures remain a constraint on monetary policy.
• The Fed is expected to raise its policy rate again in December 2026 if elevated inflationary pressures persist amid a potentially protracted conflict in the Middle East. The key risk lies not only in rising energy prices but also in the pass-through of higher costs to goods and services prices, as well as their impact on inflation expectations.
• The direction of Fed monetary policy in 2027 remains highly uncertain, depending on how long inflationary pressures linger and how well the US economy can withstand tighter financial conditions. Key risks to monitor include the Middle East conflict and the outlook for energy prices; the US midterm elections, which could have implications for economic policy and international conflicts; and the risk of a slowdown in AI investment.
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