Key Highlights

● Markets priced in more than half a point of Fed hikes by mid-2027.

● That expectation held on Friday, October 30, 2026.

● Half a point equals two standard quarter-point moves.

● Futures showed a December hike as the likely outcome.

Markets are now pricing in more than half a point of Federal Reserve rate increases by mid-2027, according to LSEG data cited by market data. That expectation was in place on Friday, October 30, 2026, two days after the Fed left its benchmark rate range unchanged.

In practical terms, half a point equals two standard quarter-point moves. Nearer term, CME FedWatch data showed a December hike as the likely outcome, according to market data, though the odds had eased somewhat from Wednesday morning, according to market data. Prediction markets Polymarket and Kalshi also leaned toward a December increase.

How the bets were built

The path started in September, when the Fed raised rates. At its October 27-28 meeting, the Federal Open Market Committee paused in a 10-2 vote, with Governor Lisa Cook and Cleveland Fed President Beth Hammack dissenting in favor of another quarter-point hike. Two dissents for tighter policy at a hold sent a clear signal that the debate inside the committee leans toward higher rates.

The statement reinforced that impression. It upgraded the Fed's description of growth from "solid" to "strong" and said, "Inflation remains elevated." Chair Kevin Warsh declined to promise anything. "I don't believe in forward guidance absent exigent circumstances, absent a crisis," he said. "I also don't believe in prejudging meetings."

Data and Fed speakers

Thursday's data then added fuel. Third-quarter gross domestic product grew at its fastest pace in a year and beat forecasts, the September personal consumption expenditures index showed headline and core Inflation at their highest since May, and initial jobless claims of 194,000 came in below the 202,000 expected. "Today's data strengthens the case for another rate increase in December," a Wealth advisor said.

Friday brought a chorus of officials arguing that rates need to be higher, according to market data. St. Louis Fed President Alberto Musalem said, "I judge that additional firming of Monetary Policy will be necessary, and soon." Dallas Fed President Lorie Logan said she wants at least two more quarter-point hikes, which on its own would match the half-point priced by markets. Richmond Fed President Tom Barkin added, "I think the question though is pace."

A puzzle in the bond market

Treasury yields have not followed the script one might expect. The 2-year and 10-year yields both fell on Friday, and both declined over October, according to market data, with the slide in the 2-year ending a seven-month run of increases. The 10-year yield had stood higher before the Fed's Wednesday decision.

The retreat in yields came alongside a stock selloff. The S&P 500 fell 140.32 points to 7,580.07 on Friday, and the Nasdaq Composite dropped 747.73 points to 25,437.00, its worst day since June 5, as an Intel (NASDAQ:INTC)-led chip rout hit the market. Gold fell $132.50 to $3,898.90 an ounce, a 52-week low.

Higher borrowing costs matter for the AI giants as well. A market analyst warned that "the risk is that higher financing costs will absorb more of the cash generated," according to market data, referring to the heavy spending by the largest tech companies.

What to watch

The October jobs report on Friday, November 6, is the next major input, with ISM Manufacturing and services surveys arriving earlier that week. a portfolio manager has called "the lack of Job growth" the "missing piece," according to market data. The midterm elections fall on Tuesday, November 3, though Warsh said "politics played no role in the decision."