No rate hike in October, another move in December? The Fed's "slow hiking" path to fight inflation emerges. Warsh's speech next week is the biggest highlight.

The Federal Reserve will announce 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 will send a signal that it is maintaining patience in fighting inflation. According to the CME Group's FedWatch tool, financial markets currently believe the probability that the Federal Open Market Committee (FOMC) will vote to raise the federal funds rate by 25 basis points at Wednesday's meeting is only one in ten. In recent weeks, Fed officials have publicly discussed whether they should follow up on September's 25 basis point rate hike to address inflation that has come in higher than expected. Although some Fed officials have expressed concerns, others have advocated a wait-and-see approach. Recently, remarks by two key FOMC membersFed Governor Bowman and New York Fed President Williamsindicated 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 has been above the Fed's target level for a fifth consecutive year, while the unemployment rate remains near historic lows. A higher federal funds rate means borrowing costs will rise across various types of loans, which could dampen spending and push down inflation. But at the same time, it could also weigh on the job market and the overall economy. Most experts expect that even if the Fed gives up on 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 that they are unlikely to take that action at the October policy meeting." If the Fed pauses its rate hike action in October, it will give officials more time to assess the extent to which fuel price increases caused by the Middle East war may 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 by Fed officials indicate that most officials will support raising rates by 25 basis points every other meeting, which means the next two rate hikes will occur in December and March next year, respectively. In addition to the rate decision, the most closely watched focus of Wednesday's Fed meeting will be Chair Warsh's press conference. However, if he follows his usual practice, he will avoid giving any hints about future monetary policy decisions. Unlike previous Fed chairs, Warsh has consistently adhered to a policy of not providing "forward guidance" to financial markets. Still, Warsh's remarks, however obscure, may offer some clues. Nomura economist Ruchir Sharma wrote in a commentary: "Warsh 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 policy tightening in 2027."