Fed Still Sees Need for More Hikes
The Federal Reserve remained one of the most important drivers of the dollar on October 8 after Governor Christopher Waller said additional rate increases will likely be necessary to bring inflation back toward the Fed’s 2% target.
Waller nevertheless emphasized that there is flexibility over the timing of those increases, meaning the Fed does not necessarily need to raise rates at consecutive meetings. Reuters
October Pause Still Looks Possible
Markets currently expect the Fed to leave rates unchanged at the October 27–28 meeting.
Fed funds futures indicate an approximately 80% probability of no October hike, while a December increase is much more heavily priced.
This means the market is not interpreting Waller’s remarks as an immediate signal for an October hike.
Instead, investors are increasingly focused on the possibility that the Fed pauses in October but resumes tightening in December.
The timing of the next rate increase therefore remains a key focus for financial markets.
Inflation Is Still the Main Problem
Waller pointed to several factors supporting higher rates.
Inflation remains more than one percentage point above the Fed’s 2% target.
The energy shock caused by the Iran conflict is also keeping inflation risks elevated.
In addition, Waller highlighted demand created by the rapid expansion of artificial-intelligence infrastructure.
This is important because it means the inflation problem is no longer viewed purely as a temporary energy shock.
What It Means for Friday
If investors continue to interpret Waller’s comments as evidence that the Fed is willing to hike again, the dollar could remain strong on Friday.
That would create a headwind for Gold and EUR/USD, while potentially supporting USD/JPY.
For U.S. stocks, the impact is more complicated.
A pause in October is positive for equities, but the possibility of another hike in December means financial conditions could remain tight.
The market will therefore continue to watch expectations for both the October and December meetings.
