08.10.202609:12 Forex Analysis & Reviews: What lies behind the Fed's unanimity

The dollar in the afternoon ignored the minutes of the September FOMC meeting because market participants found nothing new in them. The market had already priced a pause on October 28 and a 25-bp hike on December 9 to 4.00–4.25%, and the minutes simply confirmed that picture. The probability of an October hike was assessed at less than one in five, and the document did not change that. Winners were those who held the dollar expecting no surprises; losers were those who had hoped for either a dovish or a sharply hawkish turn. I believe the lack of reaction in this case does not indicate a weak document but that it was simply too predictable.

The most notable feature of the minutes is unanimity. All 19 participants supported the September rate increase to 3.75–4.00%, and the decision was unanimous. By comparison, in July the rate was left unchanged by a 9-to-3 vote, when three committee members—Beth Hammack, Neel Kashkari, and Lorie Logan—voted to raise it. Over two months the committee moved from division to full agreement, and hawks effectively got their way. The beneficiaries were the tightening supporters, while those who hoped for a pause until 2027 lost out.

Unanimity, however, does not mean the debate is over. Most participants think another hike is likely needed before the end of 2026, and several said that even after September the rate still does not sufficiently restrain the economy and inflation. This aligns with public remarks: Kashkari expects another hike in 2026 and one in 2027, and Logan allows at least 50 bp beyond September, while John Williams and Philip Jefferson say there is no need to rush and it is possible to wait for data. The minutes show more people in the committee thinking about December than about a pause until spring.

Inflation risks, participants judged, remain skewed to the upside, and some noted that over recent months the risk of higher inflation has increased. This is not news to the market: the ISM services report showed the prices index at 74, the highest since July 2022, August CPI was 3.4%, and oil remains around $100 because of the war with Iran. Many participants supported the September move as a precaution to reduce the risk that high inflation becomes entrenched amid strong demand and new price shocks. This is an important detail: the regulator raised the rate not because inflation was out of control, but to prevent it from becoming so.

Most interesting is the reference to the Treasury market. The Fed discussed the need to prepare tools in advance for stress in that market, even though it is currently functioning without major disruptions. Ten-year yields on Monday rose nearly to 5.35%, the highest level since 2002, and the Treasury failed to support the market with buybacks in August and September. Many experts already warn of a debt crisis over the next three years due to declining demand from China and Japan, yet Treasury Secretary Scott Bessent insists growth and restrained spending will bring debt down. Against that backdrop, the phrase about preparing tools sounds like an admission that the risk is real, even if it is not visible today.

The topic of artificial intelligence occupies a notable place in the minutes. Several participants noted that the scale and speed of AI infrastructure build-out continue to exceed expectations, and some warned the boom could push demand ahead of supply and intensify inflation. This echoes remarks by Lisa Cook about possible additional price pressure in 2027 from rising investment, capacity shortages, and supply disruptions. By comparison, ECB chief economist Philip Lane recently said AI investment is growing from a low base and is not yet pushing on wages, but that could change quickly. The Fed's stance is noticeably tougher than Europe's, and that is another argument for preserving the rate gap that keeps the dollar strong.

Other assessments are rather reassuring. Staff projections for economic growth and the labor market improved versus the July meeting. The labor market remains stable, and the risks of its deterioration, in the regulator's view, are generally balanced, although the September report showed only 29,000 new jobs with unemployment at 4.2%.

In my view, the minutes added confidence to the market about a December hike but did not change the outlook for October. The dollar will likely remain strong while yields stay high and Europe and Britain give it no reason to retreat, and a reversal will require either a sharp fall in oil or weak inflation prints. The next milestones will be US inflation data and the October 28 meeting; until then the market will trade according to the already known script.

What the current technical picture for EUR/USD looks like

Buyers now need to think about reclaiming 1.1240. Only that would allow targeting a test of 1.1275. From there one can reach 1.1310, but doing so without support from major players will be difficult. On the downside, I expect serious buying only around 1.1200. If nobody is there, it would be sensible to wait for a new low near 1.1165 or to open longs from 1.1130.

What the current technical picture for GBP/USD looks like

Pound buyers need to take the nearest resistance at 1.3220. Only that would allow targeting 1.3250, above which breaking through will be fairly difficult. The farthest target is the 1.3280 area. On a decline, bears will try to seize control of 1.3195. If they succeed, a break of the range would deal a serious blow to bulls and push GBP/USD to a low near 1.3160 with scope to reach 1.3130.