Weekly Economic Outlook #4: The Fed waits this week, and oil keeps December in play
Our call: the Fed holds rates on Wednesday and raises them a quarter point on Dec 9, because oil and price worries aren't going away. Bond buyers expect a pause this week but are still pricing a December hike: about three in four, per reported CME FedWatch figures. Brent crude, the global oil benchmark, finished last week near $117 a barrel, up 6% and its highest since April, after more attacks on Saudi oil sites. It eased to about $111 on Monday as Saudi Arabia opened talks with Iran.
The week ahead
This is the big week. The Fed announces its decision Wednesday at 2:00 pm ET, and Chair Kevin Warsh speaks at 2:30 pm ET. Thursday at 8:30 am ET brings the first look at third-quarter growth and September's spending and inflation figures. Alphabet and Microsoft report Wednesday after the close and Amazon on Thursday, so the AI spending story gets another test.
Jobs, prices and the Fed
Layoffs are still rare. New jobless claims fell to 194,000 in the week to Oct 17, near the lowest in decades (Labor Department). The Atlanta Fed's running estimate has third-quarter growth at a 3.5% yearly pace. But households are uneasy. The University of Michigan's sentiment index sits at 48, near a record low, and people expect prices to rise 4.7% over the next year, the most since May. Traders in fed funds futures, as tracked by CME Group's FedWatch tool and reported in the press, give about 90% odds to a hold this week and about three in four to a hike by December, down from better than 90% a week ago. Warsh's tone on Wednesday decides which side of that bet gets stronger.
Bonds, stocks and the world
The 10-year Treasury yield, which steers mortgage rates, fell 17 basis points on Thursday to 4.96%, its biggest one-day drop since March 2023. A basis point is a hundredth of a percentage point. Meta's results revived fears about AI spending, Meta's stock fell nearly 8% that day, and investors ran to the safety of government bonds. The yield ended Friday at 5.00% and the S&P 500 lost 0.5% for the week. That's two weeks of bonds moving against our call. We're sticking with it: fear fades faster than oil prices do. Abroad, the European Central Bank (Thursday) and the Bank of Japan (Friday) are expected to hold, both leaning toward more hikes later.
Sixhundred's forecasts
- Fed, Oct 28: hold at 3.75% to 4.00%.
- Fed, Dec 9: a quarter-point hike to 4.00% to 4.25%.
- Third-quarter growth, Oct 29: about a 3.5% yearly pace.
- September prices outside food and energy (the Fed's preferred PCE gauge): up 0.3% for the month.
- 10-year Treasury yield: near 5.40% on Dec 31, up from 5.00% on Oct 23.
- Most likely, 55%: the Fed hikes once in December and the 10-year ends between 5.25% and 5.50%.
- Worse, 30%: oil stays above $120, core prices rise 0.4% or more a month, the Fed hikes twice by year-end, and the 10-year heads toward 5.75%.
- Better, 15%: Gulf tensions ease, oil drops below $90, the Fed is done, and the 10-year falls toward 4.75%.
Sources: Labor Department, Atlanta Fed, University of Michigan, Federal Reserve, CME Group fed funds futures, US Treasury, S&P Dow Jones Indices, ICE, European Central Bank, Bank of Japan. Rate-hike odds are CME FedWatch figures as reported by news outlets. Forecasts and scenario odds are Sixhundred's. Data accessed Oct 26, 2026, 1:30 pm ET.
Not investment advice. This is for information only and is not an offer or recommendation to buy or sell anything.