Key Highlights

  • On October 28, 2026, markets priced about 84% to 85% odds of a 25 basis point hike at the December 8 to 9 meeting, up from about 76% on October 23.
  • In a 10 to 2 vote on October 28, the Fed kept its target range at 3.75% to 4.00%, with Lisa Cook and Beth Hammack dissenting in favour of a hike.
  • September consumer prices were reported 3.7% higher than a year earlier and up 0.6% on the month, with energy prices up about 20.4% on the year.
  • iShares 1-3 Year Treasury Bond ETF (NASDAQ:SHY) owns short-dated Treasuries, whose prices react most to near-term Fed expectations.

How the Odds Climbed

Expectations for a December hike built through late October. On October 23, markets priced about a 76% chance of a 25 basis point rise in December. After the Fed's decision on October 28, one futures-based gauge showed about 84% in the morning and another about 85% by the afternoon. The Fed held at 3.75% to 4.00%, but its statement described activity as strong rather than solid and said Inflation remains elevated. Cook and Hammack voted to hike, so two voters were already ahead of the majority. A 10 to 2 split of this kind usually signals a committee leaning toward tightening. Federal funds futures imply these odds by comparing contract prices with the current range, so they move with each data release and speech.

How a Hike Reaches Short-Dated Bonds

Bond prices drop when yields rise, and the effect is larger the longer the maturity. iShares 1-3 Year Treasury Bond ETF (NASDAQ:SHY) holds Treasuries maturing in one to three years, so its price moves far less than a long-dated fund's, yet its yields follow the federal funds rate closely. With a hike already priced at about 85%, most of the price effect has played out, and the surprise would come from the path after December. Dallas Fed President Lorie Logan said on October 30 that at least two more 25 basis point hikes are needed. If that view gains ground, short yields could rise further as traders price a higher peak.

What Could Change the Path

The main risk is sticky inflation, which would lift the expected path. The 3.7% annual rise in September consumer prices comes from published coverage of the release and should be checked against the primary data. Energy is a big driver, and oil tracks the Middle East, so a slide in crude, like the steep fall reported on November 2, could trim hike odds. A weak jobs report on November 6 at 8:30 a.m. ET would also pull them lower. For iShares 1-3 Year Treasury Bond ETF (NASDAQ:SHY), a lower odds path would likely support prices, while a hotter one would weigh on them modestly. Investors holding short-dated funds for income should note that distributions trail yields, so they rise gradually after hikes.

Where Things Stand

In most scenarios it means only modest price pressure, because the fund holds short-dated Treasuries and a 25 basis point hike is largely priced in. The bigger risk for iShares 1-3 Year Treasury Bond ETF (NASDAQ:SHY) is a faster pace than the market expects, which Logan's call for at least two more increases hints at. The evidence is mixed: strong activity and 3.7% inflation argue for hikes, while softer oil and a divided Congress could ease the pressure. The next checkpoints are the October jobs report on November 6 and the Fed decision after the December 8 to 9 meeting.