Fed’s Next Move May Be Harsher Than Markets Expect

The Fed paused in October. Markets, however, are already looking ahead to another rate hike.

Bank of America now expects the Fed to raise rates by 25bp in December and another 25bp in March 2027, taking the policy rate to 4.25%–4.50%. Markets are already pricing an 85.7% chance of a December hike.

The bigger question is whether the Fed will need to do more.

Oil Could Change the Game

Energy prices remain a key inflation risk. If tensions in the Middle East or the Russia-Ukraine conflict escalate again, another jump in oil prices could make inflation harder to bring back to 2%.

That would put the Fed in a difficult position.

Oil ↑ → Inflation ↑ → Rate-cut hopes ↓ → USD & Treasury yields ↑

And if inflation proves more persistent than expected, markets could start pricing a more aggressive Fed rather than simply another 25bp hike.

What Traders Should Watch

The next major clues will come from US jobs and inflation data in November. The October jobs report is due on November 6, followed by CPI on November 10.

For now, the message is simple:

December hike? Increasingly priced in.

Bigger tightening risk? Still underpriced if energy prices surge.

That could keep pressure on gold and US equities, while giving the US dollar and Treasury yields another leg higher.