The Federal Reserve begins a two-day policy meeting on Tuesday with most forecasters expecting it to leave interest rates unchanged, six weeks after it raised them for the first time since 2023. The decision is due at 2 p.m. Wednesday in Washington, which is 2 a.m. Thursday HKT.

The harder question is what comes next. September's jump in U.S. consumer prices has kept a December increase firmly in view, and that prospect is already shaping bond yields, the dollar and policy debates at central banks across Asia.

September's Hike Set the Tone

At its Sept. 15-16 meeting, the Federal Open Market Committee voted 12-0 to raise the federal funds target range by a quarter percentage point to 3.75% to 4%, the Fed said in its statement. The committee said the move would support “a timelier return to the Committee's 2 percent goal.”

It was the first increase under Chair Kevin Warsh, who was sworn in on May 22, according to Euronews. Warsh told reporters that inflation was too high and had been for too long, AFP reported.

Officials' quarterly projections showed 16 of the 18 participants who submitted forecasts expecting at least one more quarter-point increase this year, and four of them expecting two, according to Trading Economics. The median forecast put inflation, as measured by the personal consumption expenditures price index, at 3.7% for 2026.

Minutes of the meeting, released Oct. 7, showed most participants judged that another increase would likely be appropriate by year-end, while saying they would approach each meeting with an open mind, according to Trading Economics.

Inflation Data Revived the Debate

The September consumer price index, released Oct. 14, showed annual inflation accelerating to 3.7% from 3.4% in August, Reuters reported. Prices rose 0.6% in the month, and gasoline prices climbed 7.1%, according to Energy Information Administration data cited in the report. Core prices, which exclude food and energy, were up 2.6% from a year earlier, a reading analysts quoted by Reuters called higher than expected.

The jobs picture has softened. Employers added 29,000 jobs in September and the unemployment rate rose to 4.2%, according to J.P. Morgan Wealth Management. Phil Camporeale, the firm's chief global investment strategist, said in its preview that it does “not anticipate a move at the October FOMC meeting.”

Warsh declined to tip his hand when he spoke at an International Monetary Fund event in Bangkok, Trading Economics reported on Oct. 16. “I don't prejudge meetings,” he said.

As of Oct. 15, CME FedWatch data showed about a 27% chance of an October increase and close to 90% odds of a move by the December meeting, Reuters reported. Of 13 brokerage forecasts in a Reuters tally, 12 called for a single quarter-point hike in December. BofA Global Research was the outlier, predicting increases in both October and December.

What to Watch on Wednesday

The vote count may say as much as the decision. At the July meeting, three voting members, Beth Hammack, Neel Kashkari and Lorie Logan, dissented in favor of an immediate increase, according to AgWest Farm Credit's summary of the Fed's statement. Danske Bank analysts wrote on Oct. 22 that they expect two or three votes for a hike this week, possibly including Hammack and Logan, alongside a majority for holding.

Danske expects a quarter-point increase in December and another in March 2027. New York Fed President John Williams has suggested any further increase could wait until December, Political.org reported.

This meeting does not include new economic projections. The next set will come with the Dec. 8-9 meeting, the last of the year, according to the Fed's calendar. That December meeting is also where nearly all the brokerages in the Reuters tally expect the next increase to land.

For Asia, the spillover has already shown up in markets. On the day of the CPI report, the yield on the 10-year Treasury note rose about 9 basis points to roughly 5.30% and the dollar index hit an 18-month high, Reuters reported. Bank Indonesia, in its Oct. 21 policy statement, cited a “strong likelihood” of a further rise in U.S. rates and a strong dollar weighing on emerging-market currencies.

The Bank of Korea, which held its base rate at 3% on Oct. 22, listed possible U.S. policy changes after the midterm elections among the uncertainties behind its decision, the Kyunghyang Shinmun reported. Whatever the Fed signals on Wednesday will feed directly into those calculations.