US Dollar: October Fed pause raises December hike odds - TD Securities

TD Securities’ Oscar Munoz and Eli Nir expect the FOMC to keep the Fed Funds Rate at 4.00% in October, validating current market pricing while avoiding fresh forward guidance. They see inflation risks as elevated and argue that a hold now increases the likelihood of a December hike, with a non‑trivial chance of a larger 50bp move if data stay firm.

FOMC seen on hold, then hiking

"We expect the FOMC to keep rates on hold this week despite rising inflation risks. The chance of a surprise hike is higher than normal, but we believe they will prioritize patience and wait until December."

"A hold in October will make a December hike all the more likely. After the upside surprise in September CPI, inflation risks are still pertinent."

"The Fed will likely keep rates on hold this week, but we do not expect much new communication from the FOMC or Chair Warsh."

"We expect the Fed to hike two more times (December and March). Inflation remains above target while risks are growing."

"The evolution of inflation data will determine the extent and pace of hikes later in the cycle."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)