Resilient US economy, inflation pressures point to 25 bps Fed hike in December: Report
New Delhi, October 30
The US Federal Reserve could raise interest rates by another 25 basis points in December, with persistent inflation, rising energy prices and resilient economic activity likely to keep monetary policy restrictive, according to an ICICI Bank report.
The report maintained its expectation of a December rate hike, noting that the Federal Open Market Committee (FOMC) had provided no explicit guidance on its next policy move and would continue to base decisions on incoming economic data.
It said the outlook for monetary policy would remain dependent on inflation trends and economic developments, with Fed Chair Kevin Warsh reiterating the central bank's commitment to restoring price stability.
"Persistent inflationary pressures, renewed energy price increases and resilient economic activity are likely to keep the Fed's policy stance restrictive," the report said.
The FOMC kept the federal funds rate unchanged at 3.75-4 per cent in its latest meeting. However, two members, Lisa D. Cook and Beth M. Hammack, favoured a further 25 basis point hike, citing concerns over persistent inflation.
The report noted that markets continued to price in further monetary tightening, with an approximately 80 per cent probability of a 25 basis point rate hike in December and another increase by March 2027.
Warsh said inflation had remained above the Fed's 2 per cent target for nearly six years. He also pointed to stronger economic activity, with GDP growth in the first half of 2026 revised upwards to 2.4 per cent from 1.8 per cent.
Growth in the third quarter appeared to have accelerated further, potentially exceeding 3 per cent, supported by consumer spending, while business investment was expanding at a double-digit pace, the report said.
However, rising energy prices and the risk of broader inflationary pressures remain concerns. The report also highlighted the impact of AI-led investment, which is supporting growth but adding near-term price pressures through increased demand for technology and infrastructure.
ICICI Bank said the Fed's policy outlook would remain highly dependent on incoming data, as policymakers balance economic resilience against the need to bring inflation back to target.
— ANI
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