US Dollar: October Fed pause raises December hike odds - TD Securities

TD Securities analysts Oscar Munoz and Eli Nir anticipate the Federal Open Market Committee (FOMC) will maintain the Fed Funds Rate at 4.00% during the October meeting. This decision aligns with prevailing market expectations and avoids the provision of additional forward guidance. Elevated inflation risks are viewed as a primary concern, and the analysts argue that maintaining the current rate will increase the probability of a December hike, with a significant chance of a 50 basis points (bp) move if economic data remain robust.

The FOMC is expected to keep rates on hold during this week, despite surging inflation risks, and the likelihood of an unanticipated rate increase is considered higher than usual. The analysts believe the committee will exercise patience and postpone any decision until December. Following a positive surprise in September's Consumer Price Index (CPI), inflation risks persist, prompting the Fed to likely maintain the rate hike trajectory with hikes scheduled for December and March.

Inflation continues to exceed the target, alongside escalating risks. The trajectory of inflation data will dictate the magnitude and tempo of future rate adjustments.