Strategists Expect the Fed to Hold Next Week but Keep a December Hike in Play

With the Federal Reserve in its quiet period before the Oct. 27-28 policy meeting, Wall Street strategists are laying out what they expect, and the consensus points to a pause rather than an end to tightening.

The forecasts

TD Securities expects the Fed to keep its policy rate at 4.00% next week despite firm inflation and a solid labor market, according to a note summarized by FXStreet on Friday. The firm said a pause would make a December increase more likely, and it expects further hikes in December and March. "Barring an unexpected shock, the December rate hike is all but locked in," the strategists wrote. They also warned that one weak inflation report could prompt markets to price in a larger half-point move.

SMBC's U.S. rates team likewise forecast no change next week and a return to hikes at the Dec. 9 meeting. In its Oct. 23 weekly, SMBC said Chair Kevin Warsh avoids forward guidance, so his description of inflation and financial conditions at the post-meeting press conference will matter most.

The Fed raised rates by a quarter point in September, its first increase in three years, the Associated Press has reported.

Why it matters for crypto

Rate hikes raise the return on cash and Treasuries, which can reduce demand for assets that pay no yield, such as bitcoin. Oil near its highest level since April adds to the inflation risk. A hold paired with a hawkish message could weigh on crypto, while any sign the Fed is less worried about prices could support risk assets. Traders will be watching Warsh's tone closely.