October FOMC Recap—No Hike But Hawk Talk Persists

The Fed’s October pause is a hawkish hold rather than a change in direction, leaving another rate hike likely while current yields already offer a favorable backdrop for US fixed income.

• The Fed kept the fed funds target range at 3.75%–4.00% after September’s 25-basis-point increase, with a 10-2 vote and Beth Hammack and Lisa Cook dissenting for another hike.
• Growth and employment remain resilient: first-half GDP was revised from 1.8% to 2.4%, third-quarter GDP is expected to exceed 3.0%, and payroll growth is running above last year’s pace.
• Inflation has remained above the Fed’s 2% objective for nearly six years, while financial conditions have tightened but are not yet considered tight; sticky core inflation, oil-price risks and AI-related capital spending reinforce the hawkish stance.
• The Fed will change its meeting structure in 2027, allocating one of eight meetings exclusively to monetary-policy strategy, and by 2028 will hold two strategy meetings and six policy-setting meetings.
• Western Asset expects another hike in December and possibly one or two more by early 2027, but believes rates do not need to rise materially beyond the path priced into the yield curve.

Takeaway: Investors should expect higher-for-longer policy and an uneven disinflation path, but current starting yields provide compensation for the remaining uncertainty in US fixed income.