Fed seen holding rates as focus turns to Warsh's press conference signals

Markets have assigned a 90% chance that the Fed will leave rates at 3.75–4.00% at the upcoming FOMC gathering. Because the policy statement is likely to see few alterations, attention will centre on Chair Warsh's remarks afterward.

September's elevated inflation figures added weight to arguments for additional tightening, but senior Fed officials have shown limited eagerness for a consecutive rate increase this month. The baseline scenario is still a hawkish hold, with the discussion focused on when and how much more to tighten, not whether to tighten at all.

The chair is anticipated to stress that current policy does not yet count as sufficiently restrictive and that further rate increases are needed. He is also likely to repeat the Fed's dedication to price stability while warning against reading too much into any single data release.

With an 80% probability of a December rate increase already baked into market prices, the forward guidance for 2027 will draw heightened scrutiny. Investors anticipate approximately two additional hikes in the coming year, with the first fully discounted move occurring in April.

An unexpected rate increase would likely spark a significant risk-off shift, especially in equity and cryptocurrency markets. The dollar and bond yields could see an initial positive response, though that reaction may prove short-lived as worries about economic growth mount alongside declining stock prices.

If the Fed delivers a broadly neutral decision without hinting at an imminent increase, that could be interpreted as dovish and fuel a relief rally in risky assets. Even if the central bank sticks to the anticipated hawkish hold without major surprises, I would foresee a similar but smaller positive market response.

Since the meeting will not include updated economic projections or a dot plot, any shifts in language from Warsh or the policy statement will take centre stage.