FOMC Recap: Fed Holds, but Warsh Falls Short of a Full Hawkish Hold

Key Points

• The Federal Reserve's FOMC held interest rates steady in the 3.75-4.00% range, as anticipated, with a vote of 10-2.
• Chairman Kevin Warsh did not provide a strong indication of a potential rate hike in December, leading to a less-hawkish interpretation of the meeting.
• The US Dollar Index (DXY) is expected to find support around 102.00, with a break below this level indicating a bearish shift.

FOMC Interest Rate Decision

The FOMC decided to maintain interest rates in the 3.75-4.00% range, consistent with market expectations. The decision was supported by a 10-2 vote, with dissent from Beth Hammack and Lisa Cook. No other changes to monetary policy were made during this meeting.

FOMC Monetary Policy Statement

The FOMC's monetary policy statement included a notable adjustment, upgrading the assessment of economic activity from "solid" to "strong." This change suggests that inflation remains a primary concern for the Fed, overshadowing issues related to economic growth or employment.

FOMC Chairman Warsh’s Press Conference

During the press conference, Chairman Warsh reiterated that the FOMC might still consider raising interest rates in December. He acknowledged that the effects of the September rate hike are beginning to manifest. Key highlights from his comments include:

• Inflation is currently too high.
• The Fed's responsibility is to keep inflation expectations anchored.
• Price stability is a priority for the committee.
• Third-quarter GDP is likely to exceed 3%.
• Future FOMC schedules will change, with fewer meetings planned.

Warsh emphasized that while the Fed is seeing some positive trends, there are no definitive conclusions regarding future monetary policy. He also noted that political factors did not influence the rate decision.

Market Reaction

The market's response to the FOMC meeting was relatively muted. Traders are selling near-term bonds while purchasing longer-term bonds, indicating a potential shift towards a less aggressive rate hike trajectory. US indices are showing slight gains, while the US dollar has experienced a minor decline.

US Dollar Technical Analysis

The US Dollar Index (DXY) is currently retreating from its daily highs in the mid-102.00s but remains above the critical support level at 102.00. Moving forward, traders will focus on upcoming earnings reports from major technology companies and the midterm elections as potential catalysts for the dollar's movement.