US Fed Likely to Hold Rates in October, Hike by Year-End: CareEdge Global
CareEdge Global suggests the US Fed may hold rates in October but hike by 25 bps by year-end amid inflation and geopolitical tensions.
The US Federal Reserve is expected to maintain a steady course in October, keeping interest rates unchanged before potentially resuming its monetary tightening cycle. According to a recent commentary by CareEdge Global, markets are currently pricing in a 25 basis points (bps) hike by the end of the year, with a broader projection of cumulative tightening reaching 75 bps by mid-2027.
A Shift Toward Hawkish Policy
The ratings agency noted that the Fed's policy stance has become increasingly hawkish throughout 2026. This trend peaked with a 25 bps rate hike in September, driven largely by persistent inflation and volatile geopolitical developments that have forced a tighter monetary approach.
Geopolitical tensions, particularly the US-Israel conflict, have played a significant role in shaping these expectations. While a ceasefire in April briefly calmed the markets and lowered the likelihood of further tightening, the resurgence of conflict and the subsequent release of the Federal Open Market Committee's May meeting minutes reignited the expectation for rate hikes.
Further reinforcing this outlook were the August remarks by Kevin Warsh and the release of elevated Consumer Price Index (CPI) and Producer Price Index (PPI) data in September, both of which signaled that inflation remains a stubborn challenge.
What the Market Probabilities Say
Citing data from the CME FedWatch tool, CareEdge Global highlighted the current market sentiment regarding the October meeting:
- 78.4% Probability: The federal funds rate will remain within the 3.75-4.00 per cent range.
- 21.6% Probability: The rate will move up to the 4.00-4.25 per cent range.
However, the outlook for the end of the year is more aggressive. By December, the probability of the rate reaching 4.00-4.25 per cent jumps to 68.1 per cent, suggesting that a year-end hike is widely anticipated.
Fiscal Pressure on US Public Finances
The agency warned that sustained higher interest rates are putting a significant strain on the US government's wallet. In 2025, gross interest payments already accounted for approximately 19 per cent of total government revenue.
CareEdge Global cautioned that any further monetary tightening could intensify these fiscal pressures, deepening concerns over the deteriorating fiscal health of the United States.
Global Ripples: Mexico and Brazil
The impact of these economic shifts extends beyond US borders, with CareEdge Global flagging specific risks in other major economies:
Mexico's Investment Hurdle
Investment decisions in Mexico are currently facing delays due to two primary factors: the uncertainty surrounding the review of the United States-Mexico-Canada Agreement (USMCA) and ongoing judicial reforms.
Brazil's Political Uncertainty
In Brazil, market sentiment is being swayed by the presidential race and conflicting fiscal strategies. While the market initially reacted positively to Flavio Bolsonaro's first-round performance, the long-term outlook remains tied to the eventual winner's fiscal approach.
Ultimately, the agency concluded that the global economic landscape and financial markets will continue to be shaped by the interplay of monetary policy, geopolitical stability, and the sustainability of national debts.