Federal Reserve policymakers may skip an October rate increase and instead consider a larger 50-basis-point move in December if inflation remains stubbornly high, according to Jason Schenker, president of Prestige Economics. Such a decision would put markets on notice that the Fed is prepared to trade a sharper near-term tightening step for a potentially earlier pause in 2027.
Schenker said the September rate increase has not had enough time to work through the economy, making another move at the October meeting unlikely. Many of the inflation figures released since the decision reflect conditions that existed before the latest increase, he said, limiting their value as a measure of whether tighter policy is already cooling demand.
The Fed began its latest tightening cycle in September, its first rate increase since 2023, as officials responded to rising inflation. Federal Reserve Chair Kevin Warsh supported the shift toward higher rates, according to the material provided.
December decision could determine the 2027 path
Rates markets had largely focused on two possibilities: a conventional 25-basis-point increase in October or a similar move at the December meeting. Interest-rate swaps have fully priced a quarter-point increase for December, according to the supplied market data.
Schenker’s argument introduces a more aggressive alternative. A half-point increase in December could give the Fed room to pause early in 2027, he said, because it would bring policy rates to a more restrictive level sooner. A smaller December increase, by contrast, would leave a further hike in the first quarter more likely if inflation has not eased sufficiently.
The central bank will receive substantial new data before its final scheduled policy decision of the year. Between the October and December meetings, officials are due to examine two monthly employment reports and another Consumer Price Index release. Those reports will help show whether the September increase is beginning to restrain wage pressures, consumer spending and price growth.
Schenker had anticipated the September hike as early as June, according to the material provided. His firm, Prestige Economics, has also been included in Bloomberg’s rankings of foreign-exchange forecasters.
Inflation surprise reduced October expectations
Market expectations for an October increase had previously moved above 50% in futures trading, but those odds declined after Wednesday’s Consumer Price Index report exceeded economists’ expectations. The report showed annual consumer-price inflation at 3.7%, with a sharp rise in fuel costs accounting for much of the upside surprise.
Core inflation, which excludes food and energy, rose to 2.6%, according to the CPI data cited in the material. That measure tends to receive close attention from policymakers because it is less affected by abrupt swings in commodities and can offer a clearer view of underlying price pressures.
The stronger-than-expected headline figure initially intensified concern that the Fed could need to raise rates again quickly. Schenker’s view rests on timing: the inflation data largely predated the September decision, so an immediate October response could risk tightening policy before officials can judge the effects of their latest move.
New York Federal Reserve President Williams added to expectations for a prolonged restrictive stance, saying borrowing costs might not fall until 2027. Williams said the financial system needs time to absorb the higher target range before the Fed begins easing, according to the supplied remarks.
Bitcoin reacts as yields rise
Bitcoin fell toward $82,000 after the inflation report, according to the material provided. The move reflected a familiar sensitivity among digital assets to higher interest-rate expectations: rising Treasury yields increase the appeal of government securities while raising the cost of capital across risk-sensitive markets.
Bitcoin does not generate an interest payment, so its relative appeal can weaken when cash and short-dated government debt offer higher returns. The effect can be especially sharp in parts of the digital-asset market where traders have relied on leverage, cheap financing or momentum-driven positioning.
A December half-point increase would likely push that calculation further toward caution. It could lift short-term borrowing costs more quickly and sustain pressure on token valuations tied closely to liquidity conditions. A quarter-point increase would be less abrupt, but it could extend the tightening cycle into 2027 rather than closing the door on another hike.
Spot bitcoin exchange-traded fund flows may offer one indication of whether demand from traditional market participants is absorbing the pressure from macroeconomic conditions. Persistent outflows or weaker inflows would point to reduced appetite for price exposure, while sustained inflows could provide some offset to tighter financial conditions.
The next CPI report and the upcoming employment data now carry unusual weight for both rates and cryptocurrency markets. They will shape whether the Fed can remain patient through October, whether December brings a standard quarter-point move, and whether Schenker’s larger-hike scenario gains traction.
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