Fed Hikes Rates Amid Hawkish Sentiment and Market Expectations
The US dollar outperformed its major peers in anticipation of a hawkish Federal Reserve, and accelerated its advance after the central bank satisfied market bets. On Wednesday, the Fed raised interest rates for the first time since 2023 via a unanimous vote, citing elevated inflation and upside risks.
The Committee upgraded their GDP and inflation forecast for 2026, while the new dot plot pointed to another rate hike by the end of the year. Eight members voted for another hike next year, with one member believing two could be warranted.
Fed Chair Warsh supported the rate hike, stressing the need for higher interest rates due to an accelerating economy and jobs growth adding to price pressures. US President Trump responded quickly, suggesting that US interest rates should be slashed to around 1%.
Next week, investors will pay attention to Fed speeches and S&P flash PMIs for September, which may support the notion that the US economy is faring well. The Eurozone and UK flash PMIs will also be released on Wednesday, with strong numbers needed for the euro to flex some muscles.