Fed set to hold rates steady, with eyes on Warsh over December hike odds
The US Federal Reserve is widely expected to leave its policy rate unchanged on Wednesday, with markets pricing in roughly a 9% chance of a hike. Attention shifts to Fed Chair Kevin Warsh's press conference for signals on a possible December move.
Policymakers are expected to hold the target range at 3.75%-4%, after lifting it by 25 basis points in September. The decision and policy statement are due Wednesday at 18:00 GMT, with Warsh’s press conference to follow at 18:30 GMT.
According to the CME FedWatch Tool, markets assign about an 83% probability to a further rate move by year-end, leaving only around 17% odds that rates stay unchanged through December. That pricing means Warsh’s tone on inflation and financial conditions could move the US Dollar more than the decision itself.
Earlier this month, speaking at an International Monetary Fund event, Warsh said he does not believe in “pre-judging meetings,” a comment that led investors to largely rule out an October hike even after September’s annual CPI reading came in above expectations at 3.7%, up from 3.4%.
The Fed’s September Summary of Economic Projections showed 12 of 18 officials expecting one more quarter-point hike this year, four expecting two, and two seeing no further increases. Economists at Deutsche Bank said focus will fall on how the Fed balances persistent inflation and resilient growth against tighter financial conditions. Analysts at MUFG/BTMU noted building signs of tighter financial conditions could still leave room for December hike expectations to ease before the FOMC’s final 2026 meeting on December 9.
A hawkish tone from Warsh reaffirming the dot plot could support the dollar, while a repeat of his reluctance to commit ahead of time could ease hike bets and weigh on the currency.
Why it matters: The Fed’s tone on inflation, growth and financial conditions will shape rate-hike expectations for December, directly influencing the US Dollar, EUR/USD and broader risk sentiment across forex and rate-sensitive assets ahead of Thursday’s European Central Bank decision.
Source: FXStreet