FOMC Update: December Hike Odds Surge to Over 90% Following Dissents
| Pair | Now | Since publish |
|---|---|---|
| EURUSD | — | — |
- Oct FOMC: Rates held at 3.75%-4%; 2 dissenters favored hike.
- December hike odds surge to >90%; 25 bps expected.
- USD unmoved; focus shifts to Q3 GDP, Sept PCE.
- Rates seen peaking at 4.25% post-hike, holding through 2027.
The Federal Reserve is widely anticipated to maintain its benchmark interest rate at 3.75-4.00% following the upcoming October FOMC meeting, with markets pricing a 90% probability of a hold. This expectation persists despite recent September inflation data exceeding forecasts, as key Fed officials have indicated little urgency for an immediate back-to-back rate hike. Attention will primarily be on Fed Chair Warsh’s subsequent press conference, given limited changes are expected in the policy statement itself. Traders will seek guidance on the potential timing and extent of future tightening, particularly regarding the December policy outlook and its implications for the US Dollar. A “hawkish hold” is considered the base case, with the debate centered on the pace of further tightening rather than the direction of policy.
New sources confirm the Federal Reserve is widely expected to keep interest rates unchanged at 3.75%-4% at its October meeting. The CME FedWatch Tool indicates only a 9% chance of an increase in borrowing costs. ABN AMRO forecasts a final 25 basis point hike in December, followed by an extended period of unchanged rates.
Market expectations for a December rate hike have significantly firmed, with bond traders now pricing in a more-than-90% chance of an increase at the next meeting. This follows the October decision to keep rates steady, which saw two officials dissent. While Rabobank’s Philip Marey anticipates rates holding at 4.25% through 2027 after a December hike, market pricing also discounts the possibility of another hike by Q3 next year. US Treasury yields continued a bear-flattening move ahead of the FOMC, with OIS pricing showing almost no chance of a hike at the October meeting.
The Federal Reserve’s decision to hold rates steady saw Lisa Cook identified as one of the two officials who dissented in favor of a hike. Despite strong US growth and labor data supporting a high probability of December tightening, inflation expectations are seen improving. The Fed’s stance and comments from Chair Kevin Warsh failed to trigger a significant market reaction, leaving the US Dollar unmoved. Upcoming US economic data includes the first estimate of Q3 GDP growth and September Personal Consumption Expenditures (PCE) Price Index data.