US | Fed set to pause, but eyeing December hike

We expect the FOMC to leave the fed funds target range unchanged at 3.75-4.00% this week, pairing the pause with a hawkish narrative as it seeks further evidence before deciding whether sticky inflation warrants lifting the fed funds rate beyond December

Key points

• Key points:
• Underlying demand remains resilient despite uneven growth, as a struggling housing sector contrasts with strong consumption and AI-related investment.
• A weaker-than-expected employment report pointed to slower hiring, but did little to challenge the FOMC's assessment of a broadly stable labor market.
• September’s inflation data offered little reassurance that underlying price pressures are easing sustainably, keeping the case for additional tightening alive.
• While Fed communication and market pricing point toward a pause this week, the Committee's tightening bias will likely remain firmly intact.
• Warsh remarks will be key for gauging whether the Fed still favors a risk-handling approach or is becoming more inclined toward a prolonged tightening cycle.

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