The Federal Reserve will release its latest interest rate decision next Wednesday.
The market widely expects the central bank to keep the federal funds rate unchanged at that time, which would send a signal that it is maintaining patience in its fight against inflation.
According to the CME Group's FedWatch tool, financial markets currently see only a one-in-ten chance that the Federal Open Market Committee (FOMC) will vote to raise the federal funds rate by 25 basis points at Wednesday's meeting.
In recent weeks, Fed officials have publicly discussed whether they should follow up on September's 25 basis point hike to address higher-than-expected inflation.
While some Fed officials have expressed concern, others have advocated a wait-and-see approach.
Recently, remarks from two key FOMC members — Fed Governor Bowman and New York Fed President Williams — indicated that they do not support raising rates at two consecutive meetings.
The Fed is striving to balance the dual mandate given to it by Congress, namely maintaining low inflation and high employment.
This comes as inflation remains above the Fed's target level for a fifth consecutive year, while the unemployment rate continues to hover near historic lows.
A higher federal funds rate means borrowing costs rise across various types of loans, which could curb spending and push down inflation.
But at the same time, it could also weigh on the job market and the broader economy.
Most experts expect that even if the Fed forgoes a rate hike in October, it will raise rates again in December.
Michael Pearce, chief U.S. economist at Oxford Economics, wrote in a commentary: "All signs point to the Fed needing to continue raising rates in the near term, but comments from several key officials indicate they are unlikely to take that action at the October policy meeting."
If the Fed pauses its rate hike campaign in October, it would give officials more time to assess the extent to which fuel price increases caused by the Middle East war might push up inflation before deciding whether to take further action.
David Mericle, chief U.S. economist at Goldman Sachs, wrote in a commentary that recent remarks from Fed officials indicate most officials will support raising rates by 25 basis points at every other meeting, meaning the next two hikes will occur in December and March of next year.
Beyond the rate decision, the most closely watched focus of Wednesday's Fed meeting will be Chairman Waller's press conference.
However, if he follows his usual practice, he will avoid giving any hint about future monetary policy decisions.
Unlike previous Fed chairs, Waller has consistently adhered to a policy of not providing "forward guidance" to financial markets.
Nevertheless, Waller's remarks, no matter how obscure, could still offer some clues.
Ruchir Sharma, an economist at Nomura Securities, wrote in a commentary: "Waller is unlikely to provide any direct forward guidance at the press conference, but we expect he will implicitly support a December rate hike. His description of recent inflation data and market financial conditions may offer some clues about the threshold for further tightening in 2027."
Comments