Inflation and rising energy costs complicate the Fed’s next policy move.
Warsh’s remarks and any dissents could offer clues on December rates.
Weak hiring adds to the dilemma as the Fed weighs further tightening.
The Federal Reserve is set to reveal its decision on interest rates on Wednesday, with a hike largely out of the picture.
The latest policy meeting comes just before a crucial midterm election, where rising inflation and elevated energy prices have become a major issue, even as equity markets have stayed strong thanks to enormous investments in the artificial intelligence trade.
Investors will be looking beyond Wednesday’s announcement for clues on whether another rate increase is coming in December, particularly as Chair Kevin Warsh has offered little forward guidance.
Here are five things to know.
1. The Fed’s rate decision
The Federal Open Market Committee is widely expected to hold the federal funds target range at 3.75%–4.00% when it announces its decision at 2 PM ET.
Markets are pricing in roughly a 90% chance of no change, according to CME FedWatch data.
The Fed raised rates by a quarter percentage point in September, its first increase since 2023.
No new Summary of Economic Projections or dot plot will accompany Wednesday’s statement, leaving investors without updated forecasts of policymakers’ interest-rate expectations.
Attention will quickly shift to Warsh’s 2:30 PM ET press conference.
2. Inflation versus a cooling labor market
September consumer prices rose 3.7% from a year earlier, up from 3.4% in August, while core CPI accelerated to 2.6% from 2.4%. Producer prices also rose 1.3% month over month, their largest increase in four and a half years.
Elevated oil prices add another complication.
Higher energy costs can feed through to transportation, freight and other goods, potentially making inflation harder to contain.
Yet raising rates cannot directly resolve an oil supply shock and could weaken economic activity.
The labor market offers a counterweight. Employers added just 29,000 jobs in September, well below expectations for 90,000, while revisions reduced July and August payroll growth by a combined 60,000.
Thursday’s personal consumption expenditures inflation data will provide another important input for the December debate.
3. What will Warsh signal about December?
Warsh has indicated that he does not intend to offer detailed forward guidance, saying, “I don’t prejudge meetings.”
Investors will therefore parse his remarks for any change in the Fed’s assessment of inflation, employment risks and how restrictive current policy needs to be.
A hawkish tone that keeps further tightening on the table is expected.
However, Warsh may avoid committing to a December move, leaving incoming inflation and employment data to determine the next step.
4. Will the decision be unanimous?
With Warsh expected to not offer much hint regarding the upcoming policy path, the voting record could reveal what policymakers are thinking over the next move.
September’s decision was unanimous, but a dissent in favor of another increase this time would signal that some officials believe inflation requires a more aggressive response.
That would bring a December rate hike truly into the picture. Currently, markets are expecting a roughly 85% chance of further tightening at the December meeting.
5. How markets could react
A pause accompanied by relatively neutral language could support equities in the near term.
A hawkish statement, unexpected dissent or warning about persistent inflation could push Treasury yields higher and pressure rate-sensitive sectors.
Markets already assign substantial odds to a December rate increase, although the outcome remains dependent on incoming data.
The statement and press conference will help determine whether that expectation strengthens or begins to fade, setting the tone for markets heading into the midterms and the final weeks of the year.
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