Fed expected to hold rates steady, but Warsh may point way to more hikes
Ahead of the Fed's upcoming decision, market participants widely anticipate rates will remain unchanged. However, focus will shift to commentary from Chairman Kevin Warsh, who tends to allow data to signal decisions rather than purely relying on guidance from the Fed. This approach could indicate a cautious stance toward future rate hikes. Monitoring Warsh's statements will be crucial for traders looking to position themselves accordingly, as his perspective may suggest a more hawkish monetary outlook ahead.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). CNBC's view aligns more closely with the upper third — JPMorgan and ING share that framing.
How firms align
JPMorgan is aligned with the anticipated stability in rates, projecting a target of 1.10 for early 2026. This view reflects a similar sentiment to the market's focus on Warsh's remarks. In contrast, BofA’s position is contrary, projecting a more bearish outlook at 1.04 for the same tenor, which suggests differing views on the potential for future hikes.
What the data shows
Recent publications highlight a growing consensus among some firms that the Fed may need to consider future rate increases more actively. Insight into this shift can be found at /research/fed-policy-anticipation.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Markets expect Fed rates to hold at 5.25%-5.50%.
- 02Warsh could signal future rate hikes based on data-driven analysis.
- 03JPMorgan targets 1.10, indicating room for EUR/USD upside.
- 04Watch for Warsh's comments this Wednesday.
Market implications
Post-meeting, traders should closely monitor 1.075 for EUR/USD as a critical level. Positive commentary from Warsh could spur movements toward the upper target of 1.12. Upcoming inflation data could also play a key role in shaping expectations.
Risks to this view
An unexpected signal from the Fed indicating a more dovish policy shift or an abrupt change in economic data could invalidate the bullish outlook. Specifically, lower inflation numbers could dampen the need for future hikes.
Sentiment by currency
USD~EUR~JPY~GBP~Composite USD score: +0.00
Sources & References
How we cover this story