A December rate increase remains the market’s expected outcome. Investing.com’s rate monitor put the probability of a quarter-percentage-point increase at about 80% on 4 November. Another hold would depart from that expectation, making the evidence that might persuade the Federal Reserve to wait particularly relevant for traders.
The Fed raised its benchmark rate to 3.75–4% in September and left it unchanged on 28 October. Dallas Fed President Lorie Logan supported the hold, then argued two days later for at least two more quarter-point increases. Her position illustrates how officials can favour further tightening while allowing more time between decisions.
A similar pause came in June 2023, when the Fed held rates to assess incoming information and earlier tightening before raising them again in July. This time, the case for waiting depends on whether inflation continues to ease and subdued hiring develops into broader employment weakness.
Inflation Has Eased Unevenly
The Personal Consumption Expenditures (PCE) price index rose 3.6% between September 2025 and September 2026, above the Fed’s 2% annual inflation target. Prices excluding food and energy, known as core inflation, increased 0.3% in both August and September 2026.
Across the third quarter of 2026, however, core inflation slowed to an annualised 2.5%, from 3.3% in the second quarter. These figures express each quarter’s price increases as an annual rate. They show improvement over the broader period, while the latest monthly readings leave its durability open to question.
Energy prices add uncertainty. EBC analyst Edgar Peredo identifies disruption around the Strait of Hormuz as a potential source of persistent inflation, as higher fuel costs feed into transport and production. Oil nevertheless fell more than 8% on 4 November as investors assessed prospects for Middle East peace following the US elections.
Democrats won both chambers of Congress and will take control in January. The result prompted investors to reassess the outlook for the conflict and future government spending, although the legislative consequences remain ahead. Sustained lower oil prices would help ease inflation pressure; renewed supply disruption would threaten that relief.
October’s consumer inflation report, due on 10 November, will provide the next major update on prices. Several softer readings would make a stronger case for patience than a short-lived decline in oil alone.
Slower Hiring Could Strengthen the Case for Waiting
Payrolls increased by 29,000 in September 2026, while July and August’s combined gains were revised down by 60,000. Unemployment edged up to 4.2% from 4.1% in August, although it remained within the narrow range recorded since March.
Fed Chair Kevin Warsh offered a more reassuring assessment at his October press conference, pointing to low unemployment insurance claims. The October jobs report, scheduled for 6 November, will help establish whether September’s subdued hiring continued.
Further weak hiring alongside rising unemployment would increase the risk that higher borrowing costs deepen a slowdown. Steadier employment would give officials more scope
to respond to persistent inflation. The distinction is important for December: a resilient labour market makes an increase easier to absorb, while the inflation outlook determines whether further restraint is warranted.
Borrowing Conditions Remain Uneven
Warsh said financial and credit conditions had tightened for some households and businesses since September’s increase. His assessment distinguished that recent tightening from the overall level of borrowing conditions. The Fed’s October lending survey provides a similarly mixed picture: standards tightened for small-business and commercial property loans, while those for large and medium-sized business loans were broadly unchanged.
Business loan demand weakened partly because companies needed less financing for investment and partly because they found more attractive funding elsewhere. Some borrowers are reducing their investment needs, while others are changing lenders. Broader evidence of declining investment and hiring would strengthen the argument for allowing September’s increase more time to work.
What Bond Yields Mean for the Dollar and Gold
Peredo emphasises that gold’s response to weaker employment also depends on bond yields, the dollar, and investor demand. Each can change for reasons beyond the next Fed decision.
The market moves on 4 November provide a recent example. Gold rose 2.2% by 06:19 GMT as the dollar weakened and Treasury yields declined. Later that day, Reuters reported the benchmark 10-year Treasury yield at 4.89%, down about six basis points. These were readings from different points in the session, but both reports described support for bonds as investors reassessed the outlook after the election.
Lower expected US interest rates generally weaken support for the dollar. For gold, falling bond yields after allowing for expected inflation reduce the appeal of interest-paying alternatives. Longer-term yields also reflect inflation and government borrowing expectations, so their response can differ from changes in the probability of a December increase.
A hold would become more plausible if easing inflation were accompanied by broader employment weakness. Whether that shift supported gold would also depend on the response of bond yields and the dollar. Traders therefore have two related developments to assess: the evidence shaping the Fed’s decision and the returns available elsewhere in financial markets.
This article was written by IL Contributors at investinglive.com.from Investinglive RSS Breaking education Feed https://ift.tt/P20iG1U
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