John Velis, BNY Markets’ head of Americas Strategy, expects the Federal Reserve to raise rates once more in December, leaving another increase in prospect as policymakers weigh incoming inflation and economic data.
The Federal Open Market Committee held its target range at 3.75% to 4% on Oct. 28 in a 10-2 vote. Federal Reserve Governor Lisa D. Cook and Cleveland Fed President Beth M. Hammack dissented in favor of a quarter-point increase. The committee said it would assess incoming information as it considers the policy needed to bring inflation back to its 2% goal.
Velis set out his December forecast in a Sept. 22 BNY analysis, and the firm’s Oct. 27 preview also pointed to that meeting for its next expected increase. BNY said its view on the number of rate increases in 2027 was less settled.
BNY has argued that supply-driven inflation may respond less to interest rates, which mainly work by restraining demand. The firm said the case for more tightening depends partly on whether demand-side price pressures develop and how much higher borrowing costs cool economic activity.
The U.S. Bureau of Economic Analysis (BEA) reported that the personal consumption expenditures price index rose 3.6% year over year in September. The core index, which excludes food and energy, increased 3.1%. On a monthly basis, the indexes rose 0.5% and 0.3%, respectively.
FXStreet reported Tuesday that Velis maintained his December forecast after the October hold. The outlet attributed to him the view that another increase could help preserve the Fed’s credibility and that demand-side risks might warrant further tightening in 2027.
At his Oct. 28 news conference, Fed Chair Kevin Warsh said tighter financial and credit conditions had affected some businesses and households. “While overall financial conditions are tighter, I’m unwilling and unable to call them tight,” he said. The Fed’s next scheduled meeting is Dec. 8-9; it has not signaled that it will raise rates then.
