Key takeaways

• Lisa Cook surprised observers by joining the camp advocating for a rate hike.
• The US dollar weakened slightly and 2-year Treasury yields fell by 8 bps to 4.70% following the meeting.
• The Fed plans to reduce interest rate decisions to seven per year in 2027 and six per year in 2028.
• Markets price an 85% probability of a rate hike at the December meeting.

The first four meetings under Warsh’s leadership brought substantial volatility to the markets. However, with the picture becoming increasingly clear, it is hardly surprising that investors are reacting with growing calm.

The October decision appeared relatively obvious – for two key reasons.

First, the midterm elections are fast approaching and will determine the direction of US economic policy and, to a lesser extent, foreign policy (formally, voting is already underway via early voting). During the press conference, Warsh distanced himself from any political influence on today’s decision, though he noted that the next six weeks will significantly clarify the situation facing the US. Second, the central bank did not wish to signal to the market that it was falling behind the curve on inflation and forced into rapid monetary tightening – which is precisely how rate hikes at two consecutive meetings would likely have been interpreted.

The vote breakdown

The 10–2 vote split comes as no major surprise. Many analysts expected dissent from the consensus by the likes of Beth Hammack, Lorie Logan, or Neel Kashkari. What did come as a surprise, however, was Lisa Cook joining the camp advocating for a rate hike. Yes, the very same Lisa Cook who was “dismissed” from her post by Donald Trump in 2025. The quotation marks are deliberate here, as the decision was later deemed unlawful by the Supreme Court. However, this was not the final resolution of the matter: Cook is scheduled to attend a hearing at the White House on 5 November.

Warsh’s press conference and market reaction

As has become custom, Warsh’s statements were rather vague and offered little substance for assessing the current environment. However, two remarks stand out, providing a valuable counterweight to the uninformative formula regarding the rigid inflation target the Committee must deliver:

• “There is broad agreement that monetary medicine is taking effect.”
• “The economy is strong and moving in the right direction. Most of my colleagues do not view it as being ‘overheated’.”

These comments can be interpreted as slightly less hawkish than what the market had priced in prior to the meeting. This is reflected in the modest weakness in the US dollar, which slipped both against a trade-weighted basket of currencies (-0.2%) and the euro (-0.3%). It is further evidenced by a decline in 2-year US Treasury yields, falling by around 8 bps to 4.70%. Figure 1: Major Currencies vs US Dollar (26.10.2026 – 28.10.2026)

Source: XTB Research, 28.10.2026

A new schedule

Perhaps the most groundbreaking announcement was the change to the FOMC meeting schedule starting next year. While there will still be eight meetings annually, not all will be decision-making meetings. In 2027, one meeting will be dedicated to strategic deliberations on monetary policy, and in 2028, two meetings will be set aside for this purpose (ultimately reducing the number of interest rate decisions to six per year).

What lies ahead?

Today’s decision does not settle the debate regarding the Fed’s next move at the December meeting. Markets still lean towards a rate hike, albeit with somewhat less conviction than earlier in the day (pricing in an 85% probability down from 95%). A slight dip in rate expectations was also observed for subsequent months; while three further rate increases remain the baseline scenario, they are no longer fully priced in. Much will depend not only on oil prices, but also on capital demand from hyperscalers, which shows no signs of abating.

Despite high Treasury yields acting as a key benchmark for borrowing costs, commercial and industrial loan growth remains in double digits, while non-financial sector trade liabilities as a proportion of GDP stand at their highest level since the dot-com bubble. Based on currently available data, and regardless of the outcome of the midterm elections, we expect an interest rate hike in December to alleviate market concerns over inflation. Subsequent actions will, in our view, depend largely on the election results and broader sentiment surrounding the AI revolution.