ChainCatcher report, according to The New York Times, the market widely expects the Federal Reserve to hold rates steady at this week’s FOMC meeting (October 27–28). Fed Chair Kevin Warsh must explain why rates are not being raised despite persistently high inflation pressures, reaffirm the Fed’s unwavering commitment to fighting inflation, and preserve the possibility of another rate hike before year-end. The report notes that the Fed already raised rates once in September, and the market initially priced in another hike in October. However, comments from New York Fed President Williams, Vice Chair Jefferson, and Governor Waller at the end of September and early October suggesting they could wait, caused the probability of an October hike to drop from over 70% to under 30%. Elevated oil prices and increased material and electricity demand driven by AI infrastructure contributed to upward pressure on prices in September. The Nasdaq 100 Index has declined more than 7% since its historical peak on October 6, and the 10-year U.S. Treasury yield previously rose above 5% for several consecutive weeks. Stephen Stanley, Chief Economist for Santander U.S. Capital Markets, expects no rate change this week but believes a December hike remains possible; Warsh must explain why action was not taken in October while clarifying why a December hike is still under consideration. Since taking office in May, Warsh has provided limited forward guidance on the rate path. His post-July hold press conference, which featured overly brief language, triggered market volatility; subsequent hawkish remarks in August, the September rate hike, and the dot plot signaling one more hike this year helped restore communication. This week’s decision comes just days before the U.S. midterm elections on November 3, during which Trump previously criticized the September rate hike.
The market expects the Fed to keep rates steady at this week's FOMC meeting.
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Summary
The market expects the Fed to hold rates steady at this week’s FOMC meeting (October 27–28), as CFT regulations and inflation concerns remain front and center. Fed Chair Kevin Warsh will need to justify maintaining rates despite high inflation, while keeping the possibility of a hike later this year open. Elevated oil prices and demand for AI infrastructure drove September’s inflation. Bitcoin as an inflation hedge has garnered attention amid economic uncertainty. The Nasdaq 100 has fallen more than 7% from its peak, and the 10-year Treasury yield has risen above 5%. Stephen Stanley of Santander sees no move this week but considers a December hike possible. Warsh’s limited guidance since May has kept markets on edge.
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