TD's deputy chief economist sees the Fed stopping short of what traders expect
The Federal Reserve is likely to raise interest rates one more time in October and then hold, according to Derek Burleton, vice president and deputy chief economist at TD Bank Group. That call puts him well short of bond traders bracing for a longer tightening run.
Burleton made the forecast in his opening keynote at MortgageFest Canada on September 23, in Mississauga, Ontario.
"The start of the year, we were talking about the Fed cutting interest rates by a couple times. And now we're talking about, will they hike one more time? They hiked last week. Will they hike one more time, two more times, three more times? The market thinks they could hike three more times," Burleton said.
"We don't think it's going to have to hike nearly as much as what the market is pricing in."
The Federal Open Market Committee voted 12-0 on September 16 to lift the federal funds rate by 25 basis points to a range of 3.75% to 4%. It was the central bank's first increase since 2023. Burleton expects the next move at the October 27-28 meeting.
"We don't see the Fed raising rates by as much either. We have one more hike, which is very consensus. The Fed will raise rates again in October, just a few days before the midterms, which is unusual. But by then, we do see, as long as inflation continues to ease, we don't see a lot of further increases," he said.
Why the Fed rate hike cycle may be shorter than expected
Burleton described the current tightening as a recalibration rather than a new campaign.
"So the bottom line is, this is not a typical tightening cycle where it's up and up and up and up. This is more of a taking back some of the cuts last year. This is more fine-tuning. And again, we're not alone in this view," he said.
He said US 2-year, 5-year and 10-year Treasury yields have climbed about 100 basis points since their February lows. That run coincided with the start of the US-Iran conflict, and he attributed most of it to shifting Fed expectations.
"I know we hear a lot about the US running high deficits. You got hyperscalers borrowing, much more supply for bonds. Yeah, that has contributed. But the biggest single factor is higher oil and just expectations the Fed may have to hike a lot," Burleton said.
Melissa Cohn of William Raveis Mortgage highlighted that when markets see the Federal Reserve effectively tackling inflation, bond yields can decline, potentially bringing mortgage rates down despite higher benchmark rates.https://t.co/E3CHIOsyLQ
— Mortgage Professional America Magazine (@MPAMagazineUS) September 18, 2026
What a split rate outlook means for mortgage brokers
The bond market pushed hard in the other direction the same day. The 10-year Treasury yield jumped 12 basis points to 5.087% on Wednesday, its highest level since July 2007. The 2-year yield rose more than 10 basis points to 4.885%, a high last reached in June 2024.
Hot business data drove the selloff. S&P Global's services purchasing managers' index (PMI) climbed to 58.7 in September from 56.5 in August, a near five-year high. Its manufacturing PMI hit 56.7, the strongest reading in more than four years.
Fed Governor Michael Barr, speaking at a Chicago Fed conference on housing affordability, defended last week's move. "In my view, given changes to the economy, we were out of position, and we made an adjustment in the right direction," Barr said.
"Inflation is above our 2% target and not clearly trending toward target in a timely way. Moreover, risks to achieving our inflation target have increased, while risks to the labor market have receded," he said.
Traders responded. CME Group's FedWatch tool put the odds of an October quarter-point hike at 73% on Wednesday, up from 55% a day earlier and less than 10% a month ago. That supports Burleton's October call.
Bank of America US economist Aditya Bhave, however, expects a December hike as well.
Borrowers are feeling it. The average 30-year fixed contract rate rose to 7.12% last week, a more than two-year high, according to the Mortgage Bankers Association (MBA). Freddie Mac data showed mortgage rates perched just below 7% for the average 30-year fixed loan.
Melissa Cohn, regional vice president at William Raveis Mortgage, has argued that a Fed hike need not push mortgage rates higher.
"In 2025, when the Fed was cutting rates, mortgage rates went up," she previously said.
"So, who's to say that in 2026, if the Fed raises rates, that mortgage rates can't come down?"
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