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Fed Expected to Hold Rates Steady as Warsh Faces Questions
Confirmed
In Short: The Federal Reserve is expected to hold interest rates steady when its policy committee announces a decision on Wednesday, with attention on whether Fed Chair Kevin Warsh signals further rate hikes.
Inflation rose to 3.7% in September, and futures show a better than 80% chance of another hike in December.
Brett Ryan, senior U.S. economist at Deutsche Bank, expects Warsh to suggest that additional rate increases will probably be required as the months go on.
Warsh has said he is wary of previewing where policy is headed and prefers to end the Fed's practice of forward guidance.
Minutes of the September meeting showed a committee divided over where rates should stand in December.
Since officials voted unanimously in September to raise rates by a quarter point to 3.75% to 4%, the incoming inflation data has been anything but reassuring.
Krishna Guha, head of economics and central bank strategy at Evercore ISI, said Warsh's recent remarks in Bangkok fit a baseline of one hike per quarter.
The market expects the Fed to hold rates steady this week, with the CME FedWatch tool showing a 90.6% probability of rates remaining at their current target range of 3.75% to 4%.
The CME FedWatch tool also shows the market is anticipating multiple rate hikes by March, with a 46.5% chance that rates will be 50 basis points higher than they are now at a range of 4.25% to 4.5%.
What's confirmed
- The Vatican shared an update on Wednesday regarding Pope Leo XIV, noting that the Pontiff is making a steady recovery following lung surgery at Rome’s Agostino Gemelli Polyclinic.
What's still developing
- "My colleagues and I will need to come to our own judgment, which may take more time," Jefferson said earlier this month at the University of Virginia.
- "However, skipping October allows officials more time to assess trends in the data," Ryan wrote in a note to clients.
- "If inflation continues to disappoint and/or growth momentum fails to moderate, the Fed will add more hikes," Guha said.
- The Fed must explain why it is waiting without encouraging markets to conclude that further tightening is off the table.
- The Federal Reserve is widely expected to leave interest rates unchanged Wednesday, even after September inflation accelerated to 3.7% and wholesale prices surged more than 6%.
- The USD/JPY pair holds steady near 155.25 during the early Asian session on Wednesday.
- South Africa-focussed investors were little moved by better-than-expected GDP figures published on Tuesday, with analysts saying the below 1% growth was reflective of a subdued economy that continues to face many structural challenges.
- “Stock markets are still doing well, and investor sentiment remains positive…and as a result, the rand will still perform reasonably well,” said ETM Analytics in a research note.
- In a statement after the meeting, the group said it would hold production targets steady for November and continue to hold monthly meetings to review market conditions.
- Consumer nations are drawing down strategic stocks to fill the gap left by constrained Gulf exports, while producers are holding targets steady rather than promising barrels they may be unable to ship.
- Inflation has remained stubbornly high and the September consumer price index (CPI) data showed inflation rose faster than expected, with headline CPI rising 0.6% on a monthly basis and 3.7% from a year ago.
- Pope Leo XIV will make his first public appearance since undergoing lung surgery on Sunday, as the Vatican says the pontiff is making steady progress in hospital.