Following last week’s expected hold by the FOMC, the outlook presented points to one further Federal Reserve rate hike in December, framed as a step to preserve policy credibility. Beyond that, the path into 2027 is described as less clear, with inflation still elevated and recent firmer oil prices expected to keep pressure on the price level, even as longer-term inflation expectations are characterised as well anchored.
The assessment argues inflation is primarily supply-driven, which limits the effectiveness of higher rates as a demand-management tool, though demand-side pressures in 2027 could still warrant tighter policy. It also references an assertion that the September rate rise tightened financial conditions, while adding that, aside from AI-related wobbles in October, there is little evidence of broad tightening feeding through to the real economy. If financial jitters persist, the view is that conditions would tighten on their own, implying fewer hikes in 2027 than the two currently priced in.
