Commerzbank’s Michael Pfister highlights that the Federal Reserve left rates unchanged, with two dissenting votes for a hike. Strong US growth and labour data support a high probability of December tightening, yet inflation expectations are seen improving. Planned changes to meeting structure from 2027 should shift USD volatility toward data releases rather than Fed decisions.

Fed stance leaves Dollar unmoved

“As expected, yesterday’s Federal Reserve meeting did not result in any change to interest rates. However, two votes were cast in favour of a rate hike, including one from Lisa Cook, whom the US President would like to replace.”

“Indeed, Fed Governor Kevin Warsh provided compelling arguments in favour of a rate rise, stating that the real economy is performing robustly (today’s third-quarter GDP figures are expected to be strong) and that officials view the labour market as being in a stronger position than a year ago. They nevertheless decided against a hike because they want to await further data, and according to Warsh, inflation expectations have been moving in the right direction.”

“For the US dollar, therefore, the whole affair was a non-event: there was virtually no movement, and the market continues to price in an interest rate rise of roughly 85% for the December meeting.”

“The meeting became particularly interesting at the outset when Warsh announced that, whilst they intend to stick to eight meetings a year, from 2027 onwards, one of these will be a strategy meeting without an interest rate decision or statement. In 2028, there will be even two meetings of this kind (so only 6 rate decisions).”