Prediction-market traders put the December increase at about 85%, a 15-point gap to the forecasters' unanimity, on a day when housing data and oil both pointed toward less pressure. For next week's meeting, 94 of the 100 economists see the benchmark range staying at 3.75% to 4.00%.
Professional forecasters have closed ranks on the Federal Reserve's next move. The market is close behind but not all the way there.
In a Reuters poll of 100 economists conducted from Oct. 16 to Oct. 20, 94 said they expect the Fed to keep its benchmark federal funds rate in a range of 3.75% to 4.00% at its meeting on Oct. 27 and 28. All 100 said they expect a rate increase at the December meeting, scheduled for Dec. 8 and 9. In the same survey a month ago, fewer than half expected a December hike.
That is a large shift in a short time. In four weeks, a December increase went from a minority view to a unanimous one.
What changed
The economists' reasoning follows the data of the past month. Oil has held above $100 a barrel through the conflict with Iran, consumer prices ran hot in September, and the 10-year Treasury yield has held above 5%, closing Monday at 5.15%. The two-year yield, the maturity most sensitive to Fed expectations, closed Monday at 4.77%, up from 4.74% on Friday.
Some forecasters see room for more than a quarter point. Alex Pelle, an economist at Mizuho, has said a December increase of 25 to 50 basis points is likely.
Fed Chair Kevin Warsh has given little help to anyone trying to pin down the timing. He has made clear that he is reluctant to offer forward guidance, and the central bank is now in its quiet period before next week's meeting. The October meeting falls a week before the midterm elections on Nov. 3.
Where the market stands
Traders are not quite as certain. On Kalshi, the contract on a December rate increase traded at about 85 cents on Tuesday morning, implying roughly an 85% chance. Other trackers ranged from about 79%, an average of prediction-market prices, to about 87%, an estimate derived from fed funds futures.
The difference between 100% of economists and about 85% of the market is not a contradiction. A survey asks for a single forecast; a market price weighs every possible outcome, including the chance that something forces the Fed to wait.
The counter-signals
Two of those somethings appeared this week. Housing data showed pending home sales down 7.3% in September and, in Monday's survey, builder confidence at its lowest since 2012. And oil fell as much as about $6 a barrel from its high on reports of a mediation proposal in the Iran conflict, a reminder that the energy price driving inflation fears can move fast in both directions.
Market implications
One reading is that the December hike is effectively locked in. Inflation is running hot with oil above $100, forecasters and markets now broadly agree, and the October pause reflects timing rather than doubt.
A second reading is that unanimity is fragile. A durable fall in oil, further weakness in housing or a chair who avoids commitments could leave room for a December pause, and market pricing still allows for that.
Consensus forecasts tend to follow market pricing rather than lead it, so the survey's shift may confirm what traders already believed more than it adds new information. The more useful signal is the gap: if the market price climbs toward the survey's certainty, the debate is over; if it slips while the survey holds, investors are betting the data will change the economists' minds.
What to watch
The Fed's statement on Oct. 28 for any change in language on future increases; jobless claims on Thursday; flash purchasing managers' surveys on Friday; oil prices; and the two-year Treasury yield. A two-year yield that falls while oil stays above $100 would point to doubt about December building in the bond market.