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Morning Edition · Tuesday, October 27, 2026Published at 1:06 AM EDT · New York
Federal Reserve opens a two-day meeting with markets pricing a December rate increase
Spot gold eased 0.2% to about $4,007 an ounce and the dollar held near a one-week high before Wednesday's decision and Thursday's release of the Fed's preferred inflation gauge.
The Federal Open Market Committee (FOMC) meets on October 27 and 28 and is widely expected to hold the federal funds rate at 3.75% to 4.00%. In a Reuters poll cited by Morningstar, 94 of 100 economists forecast no change this week, and all 100 expect another increase in December. Futures markets put the chance of a move this week at 11% and a December increase at 82%. Morningstar puts the December probability nearer 75%.
Mint reports that this week's data and the path of oil prices could push the central bank in either direction. The September reading of the personal consumption expenditures (PCE) price index, the inflation measure the Fed watches most closely, is due on Thursday.
Gold slipped toward $4,010 as traders weighed a firmer dollar against Iran diplomacy that lowered energy-driven inflation risk. Spot prices fell 0.2% to $4,007.29 with the dollar near a one-week high. The metal had moved back above $4,000 on Monday, helped by the retreat in crude.
Risk assets rose before the meeting. The Economic Times reports that Wall Street's gains lifted Japanese and South Korean shares and pushed MSCI's Asia Pacific equities gauge up 0.6%. US index futures also climbed in early trading.
The Fed is weighing higher rates because energy prices are rising, not because credit demand is growing too fast. Brent crude trades above $110 after months of disruption around the Strait of Hormuz. Tightening into a supply shock raises borrowing costs across a heavily indebted economy without adding any barrels of oil. Austrian-school analysts argue that this combination exposes projects financed during the years of cheap credit.
Part of a tracked trend
Renewed Fed Tightening Fears Rattle Global Markets
Over the next 3-6 months stronger US data revives expectations of Fed rate hikes, driving a firmer dollar, equity selloffs in export-heavy markets, and pressure on hard assets as the IMF warns of recurring economic shocks.
What this means
Higher US short-term rates work through a stronger dollar. That tightens financial conditions for oil-importing emerging markets that borrow in dollars, such as Pakistan, and raises the opportunity cost of holding gold. A hold on Wednesday is fully expected. A December increase is mostly priced, so the new information will come from the statement's language and from Thursday's PCE data. The consensus treats the December move as close to certain, but the expectation rests on oil. Brent has already fallen for two sessions on Iran mediation. The closest precedent is July 2008. The European Central Bank raised rates as crude peaked, then cut within months once the energy shock turned into a demand collapse. The likelier outcome is that the Fed holds this week and keeps December open without committing to it. If Gulf diplomacy produces a durable reopening of shipping through Hormuz within the next month, expect December hike odds to fall and gold to hold above $4,000 as the dollar softens. A strong core PCE reading on Thursday would prove that read wrong and lift the dollar further.
What to watch
- The wording of Wednesday's statement on energy prices. If the Fed describes the oil shock as temporary, it would mean the committee is less willing to raise rates in December.
- Thursday's core PCE figure. A firm number would confirm the December pricing, and a soft one would undercut it.
- Whether gold holds above $4,000 if December odds stay high. Resilience against rising rate expectations would point to demand that does not depend on US yields.
Observations to monitor, not financial advice.
Synthesized from: Mint (Economy) · Investing.com Commodities · Economic Times
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- Brazil's Ibovespa falls 13.9% and the real drops 8.2% after Lula wins a fourth term
- Saudi, Pakistani and Turkish security chiefs press Iran on Hormuz after a record month of tanker attacks
- European gas reaches a four-year high as storage runs below normal before winter
- Israelis vote with polls showing neither Netanyahu's bloc nor Eisenkot's bloc reaching a majority
- Pakistan raises its policy rate to 12% as the oil shock reaches central banks and airlines
- Former Bank of Japan governor Kuroda backs more rate increases as services inflation reaches 3.7%
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Comments
1Oct 27, 5:06 AM
With futures pricing an 82% chance of a December increase, a firm PCE reading on Thursday can add at most 18 points while a soft one can remove far more, so the larger repricing risk runs toward a hold.