Federal Reserve: More hikes ahead after October pause - UOB

The Federal Reserve revealed its plan for more interest rate hikes after pausing its increases in October, according to analysis by UOB’s Alvin Liew. The September 2026 Federal Open Market Committee (FOMC) minutes showed 19 out of 19 participants supporting a 25 basis points hike to a range of 3.75-4.00%, marking a unanimous shift toward tighter monetary policy.

While participants offered differing opinions on the reasons behind the tightening, such as inflation-risk insurance and concerns about stronger demand, most agreed that another rate increase would likely be warranted by the end of the year. The September minutes didn't commit the Fed to any action in the upcoming October FOMC meeting, which took place less than a week before the midterm elections on November 3rd.

Liew expects two additional rate hikes in December 2026 and the first quarter of 2027, with the US Fed Funds Target Rate potentially reaching a peak of 4.50% by the end of 2027. The probability of an October rate hike, as indicated by Bloomberg’s WIRP, fell to 19.4% on October 8th from 21.6% on October 5th, and significantly lower from 70.3% on September 28th.

The geopolitical risks, including potential Middle East strikes and hawkish FOMC minutes, are likely to keep the US Dollar supported against currencies like the Japanese Yen, while gold recovered slightly after initially dipping due to the stronger US Dollar and lower US Treasury yields.