Federal Reserve: A Pause Before Another Hike in December?

After September’s hike—the first since summer 2023—the Fed’s monetary policy committee opted to stand pat this time around. This was in line with the expectations of the vast majority of forecasters in the consensus (87 out of 93), as well as those of futures markets. It should be noted that, although the Fed has become more reluctant to send signals since Kevin Warsh took over as Chair, the groundwork had been laid over the past month through speeches by several central bank officials. That said, the decision was not unanimous: two committee members favoured a further 25‑basis-point tightening.

As has now become customary, the statement was rather terse and offered little forward guidance for upcoming meetings. It may nonetheless be useful to recall the projections released by Fed officials in September, which pointed to another key rate hike before year-end. Has the situation changed enough since then to suggest a change in direction? Not really, as inflation remains higher. Some labour market indicators disappointed in September, but others continue to show a degree of resilience. Moreover, real GDP growth for the third quarter, due out tomorrow, is expected to be fairly strong. If these conditions persist through December, Fed officials will likely announce another rate hike.

At his press conference, Kevin Warsh appeared relatively satisfied with developments since the September meeting. He pointed to somewhat tighter financial conditions, as well as signs of more prudent asset allocation by investors and markets. He also welcomed the stability of inflation expectations. Above all, he reiterated the need for more information before making the next monetary policy decision—a way of avoiding any commitment regarding the December meeting just yet.

Chair Warsh also announced that, starting next year, one of the monetary policy committee’s eight annual meetings will be devoted exclusively to more strategic discussions, with no monetary policy decision or statement released. This will be the case for two of the eight meetings as of 2028. Further details will be announced in due course.