FED PREVIEW: No Rush, But Not Done

The FOMC meets Tuesday and Wednesday, and markets price roughly a 90% chance it holds the target range at 3.75–4.00%. A pause after September's hike might look like a softening. It isn't.
The debate is timing, not direction
In September's dot plot, 16 of 18 officials saw another 25 to 50bp of hikes by the end of 2027. Since then, core members have played down any urgency. Williams saw "no need for urgency," Bowman no "urgent need for further action," and Jefferson said assessing inflation trends "may take more time." Even Waller, who expects "additional hikes," said they don't have to come at back-to-back meetings.
The hawks are pushing harder. Musalem argued that "earlier and incremental" firming beats "later and larger," and Logan said policy "needs to become restrictive," with 50bp or more possibly still needed. Expect dissents in favor of a hike, most likely from Hammack and Logan, who both dissented in July.
Inflation isn't cooperating
September CPI ran hot. Core rose 0.335% m/m against a 0.21% consensus, and price rises spread into durable goods as chip-heavy categories climbed alongside the AI investment boom. PPI and import prices hit highs not seen since 2022. Core PCE tracking now points to about 0.33% m/m, which would take the yearly rate from 3.0% to 3.1%, further from the 2% target.
The economy is still running hot
GDPNow puts Q3 growth at 3.5% annualized, with final sales to private domestic buyers near 4.7% and equipment investment up around 18% on AI spending. Payrolls were soft at just 29k in September, and unemployment ticked up to 4.2%. But jobless claims are near their lowest since the 1960s, and the 4-week average has stayed below 200k for three weeks straight.

What to watch from Warsh
The key question is how Chair Warsh describes how restrictive policy is. In September he said he'd be "hard-pressed to describe broad financial conditions as restrictive." If the Fed holds while conditions still aren't restrictive, he has to explain how inflation gets back to 2% in time. If he says conditions have tightened, markets will read that as fewer hikes ahead and loosen conditions again.
Expect him to repeat his line that "trends matter, data points are noisy," and listen for any hint, however faint, that December is live. The Fed will have two more payroll reports and another CPI print in hand by then, and the midterms on November 3 will be behind it.

Markets have already pulled back
After last week's tech-led selloff, expected peak rates fell from 4.73% to about 4.57%. The market debate has shifted from three or four more hikes to two or three. That's still more than most officials are signaling.
Bottom line: expect a hold with a hawkish tone, a couple of dissents, and a Chair who won't commit to anything but 2%.