FOMC Preview: A Hawkish Hold on the Cards, with December in Focus

FOMC Preview: A Hawkish Hold on the Cards, with December in Focus

The Federal Open Market Committee (FOMC) concludes its two-day meeting tomorrow (28 October 2026), with the statement due at 14:00 ET and Chair Kevin Warsh’s press conference at 14:30 ET. There is no Summary of Economic Projections or new dot plot (the next one arrives in December). Markets and most analysts expect a hold in the 3.75–4.00% target range after September’s unanimous 25 bp hike—the first in three years—under Warsh.

What the FedWatch Tool Is Saying

CME FedWatch (fed funds futures) prices roughly a 90–92% probability of a hold and only ~8–10% chance of a 25 bp hike. December is the clearer event: markets assign ~75–80%+ odds of at least one further hike by year-end (most likely another 25 bp to 4.00–4.25%). Further out, pricing implies additional tightening into 2027 before any easing discussion. Research houses align closely: around 50 of 51 expect a hold this week, with near-universal consensus on a December move.

Polymarket and other prediction markets show a similar skew (~93% hold).

Key Drivers

• Inflation remains elevated and sticky: September CPI came in hotter (headline ~3.7% YoY, core 2.6%), with energy pressures linked to the Iran conflict (oil elevated) and some broadening of price gains. Core PCE is still projected above 3% and well above the 2% target. Officials have described inflation as “too high for too long.”
• Growth and demand resilience: Solid consumer spending, AI-related investment boom, and a stable labour market (unemployment ~4.2%, though job gains have slowed) give the Fed room. The September hike already removed “a dose of accommodation.”
• Financial conditions and timing: Higher long-term yields have already tightened conditions. Officials (Jefferson, Waller, Williams and others) have signalled no urgency for back-to-back hikes. The proximity of the 3 November midterms also raises the bar for an October move.
• Hawkish bias retained: September SEP median pointed to one more hike by end-2026. A hold is widely viewed as temporary—“hawkish pause”—with the statement and Warsh likely to keep further tightening on the table if inflation does not moderate.

Possible hawkish dissents (e.g., from regional presidents) are a live risk.

Bonds: Current Behaviour and Likely Reaction

The Treasury curve is positively sloped and elevated. As of late October, the 10-year yield is around 5.00% (near multi-year highs earlier in the month), the 2-year around 4.68–4.73%, and the 10s–2s spread roughly +30–32 bp. Yields have eased modestly from early-October peaks but remain supported by the higher-for-longer rate path and inflation concerns.

Base case (hawkish hold): Front-end yields (2-year) may stay firm or drift slightly higher if Warsh leans hawkish on December. The 10-year is more sensitive to the overall path, growth, and any shift in financial-conditions language; a clean hold with no major dovish surprises should keep it range-bound around current levels or mildly lower on relief. A surprise hike would push the whole curve higher, with the front end leading. Post-meeting, watch the statement’s inflation language, any “further adjustments” phrasing, the vote split, and Warsh’s tone on data dependence versus a clear tightening bias.

Equities and the USD

• Equities: S&P 500 has been resilient (around 7,720–7,730 recently, up modestly on the day of 27 October), with AI/tech leadership offsetting higher yields. A well-telegraphed hold is likely to be equity-friendly in the short term (relief rally possible), especially if Warsh avoids sounding overly aggressive. A hawkish surprise (hike or very firm December guidance) would pressure valuations, particularly rate-sensitive and longer-duration growth names. Broader markets have absorbed higher yields so far because of strong growth/AI narratives.
• USD: The DXY is firm near 102.2–102.3, supported by yield differentials and rate expectations. A hawkish hold should keep the dollar supported or modestly stronger. A dovish surprise (softer language or clear pause signal) would likely weigh on the USD; a hike would reinforce it.

What to Watch Tomorrow

1. The statement’s characterisation of inflation and the outlook.
2. Any dissents and the vote.
3. Warsh’s press conference—especially on the December meeting, data dependence, financial conditions, and whether he reaffirms the tightening bias without pre-committing.
4. Immediate reactions in 2-year yields, the dollar, and equity futures.

Bottom line: This is expected to be a “skip”, not the end of the cycle. Markets have largely priced the hold; the real signal will be how firmly the Fed keeps December (and possibly early 2027) in play. A hawkish hold is the consensus path—supportive of yields and the dollar near current levels, with equities looking for confirmation that growth can coexist with restrictive policy. Data and pricing can shift quickly with the statement and presser. This is market commentary based on pre-meeting information as of 27 October 2026, not advice.

By Anna Coulling – creator of volume price analysis

By Anna Coulling – creator of volume price analysis