The U.S. central bank (the Federal Reserve, or "the Fed") faces a major dilemma ahead of its interest rate decision on Wednesday (October 28, 2026), local time. On one hand, inflationary pressure in the U.S. remains high, with the Consumer Price Index (CPI) for September reaching 3.7% year-on-year—well above the 2% inflation target. On the other hand, overly tight monetary policy risks slowing economic growth and increasing the financial burden on the public. Consequently, the Fed must strike a balance between maintaining price stability and preserving economic strength.
A surge in oil prices, driven by geopolitical conflict in the Middle East, poses one of the greatest challenges for the Fed. Rising energy costs threaten to push up prices for transportation, distribution, and various consumer goods, making inflationary pressure increasingly difficult to contain. However, raising interest rates does not directly resolve oil supply disruptions; instead, such a policy could suppress consumption and investment at a time when businesses are already grappling with higher production costs.
Despite inflationary risks, the U.S. economy has shown resilience, with an unemployment rate of approximately 4.2% and a projected third-quarter economic growth rate of 3%. This provides the Fed with room to maintain a tight monetary policy without the need for an immediate, additional interest rate hike. Most economists anticipate that interest rates will be held in the 3.75%–4.00% range, following a 25-basis-point increase in September. Nevertheless, a slowdown in hiring remains a key factor in determining the future direction of policy.
The Fed’s upcoming decision is expected to hinge not only on the interest rate level itself but also on statements from Fed Chair Kevin Warsh regarding the outlook for inflation and economic growth. Should the Fed maintain current interest rates while signaling a "hawkish" stance, the market may interpret this as a sign that controlling inflation remains the primary priority. Conversely, if concerns regarding an economic slowdown emerge, the possibility of a shift in monetary policy may once again become a focal point for investors. Consequently, FOMC decisions will serve as a key determinant for the trajectory of the US dollar, bond yields, and global gold prices.