The Federal Reserve (Fed) adhered to the script by keeping rates at 3.75%-4%, pausing after the unanimous increase of +25 bps in September. The decision made this Wednesday was taken by 10 to 2 votes, with Lisa Cook and Beth Hammack in favour of a 25 bps increase.
According to the statement, the Fed is waiting for "more information" and maintains its goal of achieving price stability (2%). Although it does not provide signals on whether there will be an increase in December, the market keeps the probability high (around 85%) of +25 bps, in line with the "dot plot" presented in September, which places rates at 4.0%-4.25% by the end of 2026.
Furthermore, by then we will have more visibility with two more employment reports and one CPI report, as well as new forecasts for GDP, inflation, and employment with the update of its macroeconomic framework. The market is also pricing in two additional increases in 2027 up to 4.5% (versus stability expected by the Fed for the next year), although these moves will be entirely dependent on the evolution of inflation, and therefore on unpredictable geopolitics.
Regarding Warsh's intervention, we highlight the announcement of changes in the meetings of 2027 and 2028 with the aim of regularly assessing the situation with plenty of information: while it will maintain eight meetings per year, in 2027 one will be solely for strategy, without a vote on rates or a statement, while in 2028 there will be two for strategy and six for decision-making. We will see if these changes imply a loss of transparency. As for the market reaction to the Fed meeting, it was limited, despite the bias being rather "hawkish" (two dissenters in favour of raising rates, rising CPI and strong GDP).