Our latest views on the major central banks
At a Glance
The desk anticipates that the Federal Reserve will proceed with one 25bp rate hike in December, despite current market projections suggesting a more aggressive tightening path. Per the full note , recent comments from Fed officials indicate a more patient approach in adjusting rates. This is supported by signs that inflation, while elevated, may be adequately tempered by tighter financial conditions, including rising Treasury yields and a stronger dollar, without significant immediate economic detriment.
Key Takeaways
- 01Fed likely to raise rates by 25bps in December amid persistent inflation.
- 02Market sentiment indicates one hike, with broader economic factors weighing on growth.
- 03Current USD/EUR consensus remains at 1.075, with expectations for volatility around ECB and Fed actions.
- 04Expect continued scrutiny of inflation prints as crucial for monetary policy direction.
Full Analysis
What the desk is arguing
The desk believes that the Federal Reserve will implement a key rate hike at the December meeting, as inflation persists and labor markets remain tight. Per the full note , current projections from FOMC members indicate a consensus leaning toward at least one more increase in policy rates this year despite recent assertions from Fed officials advocating for a more cautious approach.
The FOMC's recent forecast suggests that only 2 members expect no further hikes while 12 forecast at least one more. The potential tightening from rising Treasury yields creates a nuanced backdrop that could stifle growth, aligning with broader market sentiments that see the Fed’s next move as possibly final for 2026.
Where it sits in our coverage
Our consensus target for USD performance against the Euro is 1.075, with a range of projections from major firms such as: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view is consistent with the positions of jpmorgan, considering potential tightening moves by the Fed. However, the desk's call is at the higher end of the range with concerns about a broader economic slowdown potentially slowing the Fed down in its tightening schedule.
How other firms see it
Firms aligned with our view, such as jpmorgan, expect a rate hike trajectory consistent with a stronger dollar, while bofa takes a contrary position, notably more cautious in their outlook. They expect pressure on the dollar as the economic outlook appears less supportive.
The USD/EUR trajectory will be significantly influenced by upcoming ECB decisions in December and how closely the Fed’s strategy aligns with the inflation dynamics in the Eurozone. Watch key inflation indicators that will steer sentiment for both the EUR/USD and similarly influenced pairs such as USD/JPY.
Market Implications
Watch for USD/EUR to test levels at 1.075 ahead of the anticipated December Fed meeting, providing critical insights into trading dynamics as monetary policies align. Positioning signals in the derivatives market may help gauge trader perspectives ahead of major central bank decisions.
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Articles Our latest views on the major central banks Published 10:03 Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Our take on what could be next for the Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan over the
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4 itemsFederal Reserve preview: A pause before a December hike
In anticipation of the upcoming FOMC meeting on October 28, the desk aligns with the expectation that the Federal Reserve will maintain interest rates despite recent inflation pressures. Per the full note from ing-think, Fed officials have indicated a need for more tightening, suggesting a December rate hike is on the horizon. The decision to pause in October reflects broader economic stability despite cooling sectors and mixed job numbers. This aligns with the sentiment across the FX market, where traders are assessing how these decisions will impact pairs like EUR/USD, GBP/USD, and USD/JPY as we approach year-end market dynamics.
Rates Spark: Either way, the Fed will surprise
The desk anticipates a nuanced response from the Federal Reserve during its upcoming meeting, suggesting the Fed will likely maintain its current rate, potentially surprising the market which sees a 30% chance of a hike. Per the full note [source], the underlying forces, particularly the influence of oil prices, are creating a split sentiment among traders, complicating predictive assessments. With our economists projecting no rate hike this year if oil continues to decline, the market's dovish shift appears justified. This dovish stance is reinforced by ongoing trends in the UK and Eurozone, where tightening is also seen as unlikely given current economic indicators.