Federal Reserve Chair Kevin Warsh and the FOMC delivered the expected hold decision on US interest rates last night, leaving the 3.75% to 4% range in place.
As is often the case, it was not the decision itself that was of most interest to investors but Warsh’s commentary and the implications for future meetings.
A hike at the December meeting was left squarely on the table, with Warsh emphasising his determination to get inflation down to the 2% target, and talking up the current strength of the US economy.
Another notable aspect was Warsh saying the Fed will set rates just seven times next year and six in 2028, rather than the current eight times. It will still meet eight times, with the other two get-togethers being strategy discussion sessions.
Reto Cueni, chief economist at Syz Group, said: “As expected, the FOMC left its key policy rate unchanged at its October meeting, and Fed Chair Kevin Warsh delivered a balanced but sufficiently hawkish press conference to prevent markets from repricing the rate-hike path they had priced in before the meeting.
“The markets still expect a Fed rate hike in December, and we think this is currently the correct assessment – a next hike seems postponed but not abandoned.
“Warsh reinforced this perception by mentioning several times that inflation remains above the Fed’s 2% target and that the FOMC is committed to delivering on its mandate. In 2027, markets still expect one and a half further rate hikes, while we expect only one during the first half of the year.”
Max Stainton, senior global macro strategist at Fidelity International, said: “Warsh acknowledged that while the September CPI print was not consistent with the Fed’s inflation mandate, the committee will not be moved to action by a single data point, and will instead focus on the trends in the underlying data.
“Additionally, Warsh clarified that the FOMC will be moving to a six plus two meeting schedule over the coming two years, giving the FOMC space to discuss monetary policy strategy, while simultaneously reducing the number of interest rate decision points from eight to six.
“Finally, Warsh clarified that while he and the rest of the Committee believe financial conditions have tightened, he would still struggle to define them as tight.
Richard Carter, head of fixed interest research at Quilter Cheviot, added: “While one more rate rise is expected from the Federal Reserve this year, the board has decided today is not the time to hike and has left interest rates unchanged.
“The Fed clearly feels it has time on its side and that it can move depending on the data, especially as inflation is not rising as fast as it did in 2022. That said, inflationary pressures are intensifying, so it may just a brief pause in the rate hiking cycle, especially if signs point to core inflation beginning to climb.
“The other complicating factor is next week’s midterm elections. President Trump would love nothing more than to go to the electorate with a fresh rate cut given all the noise around inflation and price rises in the run up to these elections.”
