The Federal Reserve is widely expected to keep interest rates unchanged at its upcoming October FOMC meeting, despite recent hot inflation data. Markets and economists anticipate a pause before a potential rate hike in December. Fed officials, including Vice Chairs Philip Jefferson and Michelle Bowman, and Governor Chris Waller, have signaled no rush to decide on the next policy move, calming market expectations of an October hike.
While the economy is growing robustly and inflation remains above target, recent disappointing jobs numbers and pain in interest rate-sensitive sectors like housing have tempered immediate action. Fed Chair Kevin Warsh is likely to deliver a brief and matter-of-fact press conference, emphasizing that policy changes will be determined by incoming data trends.
Looking ahead to December, the Fed will have two jobs reports and one inflation print to consider. The consensus forecast, including the Fed's own projections, anticipates one hike this year with rates left unchanged throughout 2027. However, risks include a longer-lasting conflict that could lead to additional hikes in early 2027 and more substantial rate cuts in the second half of 2027.
The Fed is also likely to let Treasuries do their own thing, with the 10-year yield expected to snap back above 5%. The dollar is likely to hold onto most of its September gains, supported by higher US yields. A dovish shift in Fed messaging is not expected to be the catalyst for a dollar correction.