Warsh Gives No Rate Signal: October Hike Bets Fade
Fed Chair Warsh stays silent on rates, and October hike bets fall below 15 percent. What it means for EUR/USD.
Key Takeaways
- Fed Chair Warsh gives no rate signal in Bangkok; bets on an October hike fade.
- Markets now price less than a 15 percent chance of a hike on Oct. 27-28.
- Meanwhile, the clash between the Fed and the Treasury over bond purchases and public finances is growing.
Not a word on interest rates, and markets breathe a sigh of relief: after Fed Chair Kevin Warsh's appearance, the priced-in chance of a hike on Oct. 27-28 fell from roughly 27 to below 15 percent. EUR/USD trades at 1.126 US dollars. The real unrest lies elsewhere, though.
An appearance without a message
Warsh took part in a discussion on the sidelines of the IMF annual meeting in Bangkok. Beyond a commitment to price stability, he gave nothing away, neither on the rate path nor on the US economy. He merely noted that the Fed pulled back part of its accommodative stance about a month ago.
Claudio Kummerfeld of Finanzmarktwelt (citing Bloomberg) reports that stocks in Asia, the US and Europe rose at times. Derek Tang, an economist at Monetary Policy Analytics, says Warsh clearly avoided saying anything "hawkish."
For context: in September the Fed hiked for the first time since 2023, unanimously with all 19 votes, and a majority expects another step before year-end. Bangkok changed nothing there; it only weakened the October bet.
The lasting conflict: inflation brake versus debt load
More important for the dollar than a single appearance is a structural question that Stefan Jäger raises at Finanzmarktwelt. Two institutions are pulling in opposite directions. The Fed is fighting inflation that has climbed back to 3.7 percent; its policy rate stands at 3.75 to 4 percent. The Treasury under Scott Bessent, by contrast, wants to double monthly buybacks of US government bonds from 2 billion to 4 billion dollars and could tap roughly 1 trillion dollars in cash balances.
The pressure comes from the bond market: the yield on 30-year Treasuries briefly jumped to 5.7 percent, and public debt again exceeds 120 percent of economic output.
Bravos Research recalls the war years, when both institutions pinned long-term yields at 2.5 percent. Inflation then shot up to almost 20 percent by 1947; the 1951 accord restored the Fed's independence. The central question, according to the article: does price stability come before debt financing? If not, financial repression looms, with rising asset prices and creeping loss of purchasing power.
What momentum says
Momentum signals a mixed picture for EUR/USD: the 1h and 4h readings are bullish, the 1D and 1W readings bearish. In the short term the euro has a tailwind, while the broader trend remains weak.