FOMC MINUTES KEEP HAWKISH STANCE AS OCTOBER HIKE ODDS FADE
The September FOMC Minutes showed broad support for the Federal Reserve’s latest rate increase, with all 19 participants backing the 25-basis-point hike to 3.75%–4.00%. Most officials also said another rate increase would likely be appropriate by year-end.
Despite the hawkish tone of the minutes, markets currently price only a 20%–25% probability of an October rate hike. Recent comments from Fed policymakers have indicated that the central bank can take more time to assess economic conditions and the effects of the September rate increase.
Inflation remained a key consideration behind the September decision. Fed staff estimated August PCE inflation at 3.8% year-on-year, with core PCE at 3.4%, both above the Fed’s 2% target. The minutes noted that the unemployment rate was 4.1% in July and August.
The US Dollar Index (DXY) rose 0.42% to near 102.3 on October 7, although the FOMC Minutes generated limited immediate market reaction. US Treasury yields remained an important market factor, with the 10-year yield reaching 5.36%, its highest level since 2002, before easing toward 5.28% after a strong Treasury auction.
The minutes also highlighted that the US Dollar had declined against major currencies between the July and September meetings as interest-rate differentials narrowed, while other central banks, including the ECB, raised their rates. A Fed hold in October could limit support for the Dollar, while stronger inflation data could increase expectations for a December rate hike.
The next major policy focus will be the Federal Reserve’s October 28 rate decision, with upcoming inflation and labor-market data also expected to influence the timing of future policy adjustments.
For market participants, the key factors remain DXY near 102.3, the 20%–25% October Fed hike probability, PCE inflation, the 3.75%–4.00% policy rate range, the 10-year Treasury yield near 5.28%–5.36% and the October 28 Fed decision, which may provide further context for the near-term direction of the US Dollar.
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