The Federal Reserve kept interest rates unchanged at its October 28 meeting, leaving the federal funds target range at 3.75%–4.00%. The decision was widely expected, but it was not unanimous: two policymakers dissented in favour of an immediate quarter-point hike, a clear sign of how hawkish the debate inside the Fed has become.
How markets reacted
The US dollar’s first reaction was muted, but it weakened during Chair Kevin Warsh’s press conference as he signalled patience rather than urgency. The US Dollar Index ended the day about 0.2% lower, near 102.15. Treasury yields initially rose after the statement, then the 2-year yield fell as Warsh spoke, steepening the yield curve. Stocks closed slightly higher.
Key takeaways from Warsh’s press conference
- Politics played “no role”: With the US midterm elections only days away, Warsh stressed the decision was based purely on economic data.
- Fewer meetings from next year: Warsh outlined a plan for the Fed to hold fewer rate-setting meetings starting in 2027, a notable change to how markets will trade Fed risk.
- Patience, not complacency: The tone suggested the Fed wants more data before acting, which leaves December open.
December is now the focus
Despite Warsh’s patient tone, markets still price roughly an 80% chance of a December rate hike and around 70 basis points of tightening by the end of 2027. The two dissents strengthen the case that a hike is close.
The rest of the week added further cross-currents. A renewed selloff in AI-related shares after results from Alphabet, Amazon and Intel pushed investors toward Treasuries, lowering yields and weighing on the dollar. Meanwhile, US third-quarter GDP grew at a solid 3.4% annualised rate, even as the Nasdaq suffered its worst month since March 2025.
What it means for forex traders
- Data dependence is high: Friday’s nonfarm payrolls report could make or break December hike expectations. September’s report showed only 29,000 jobs added.
- Dollar vulnerable to weak data: With a hike largely priced in, a soft jobs report could trigger a bigger dollar pullback than a strong one triggers a rally.
- Watch the 2-year yield: It is the most direct market signal of Fed expectations.
Bottom line: The Fed held, but with two hawkish dissents and an 80% market probability of a December move, the tightening debate is far from over. Upcoming data will decide the dollar’s next direction.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Trading forex and CFDs carries a high level of risk and may not be suitable for all investors. Market levels quoted are approximate at the time of writing.