Warsh talks plenty but December rate hike odds barely shift

What did the Fed's latest gathering actually reveal once the anticipation had built? Market pricing suggests the answer is: not much.

Despite a briefer press conference than usual, Chair Warsh had plenty to say, but pricing for a December move was barely altered. Hardly a wasted afternoon for the Fed, one could say.

To sum it up in a single line, it was mostly noise for December market pricing, yet the meeting itself wasn't without significance.

Traders went into the decision with roughly 88% odds assigned to a 25 basis point December hike. Following Warsh's press conference, those odds stood near 82%. In basis point terms, that's about 22 bps moving to approximately 20 bps. In other words, little changed.

The Fed did shift its economic growth description from "solid" to "strong". Two officials voted against the decision, preferring an immediate increase. Hammack's dissent was widely anticipated, while Cook's was something of a surprise, albeit hardly a dramatic one. Both moves could be read as hawkish, yet Warsh didn't seize on them.

He countered by suggesting that productivity gains might account for why sturdy growth hasn't automatically generated higher inflation. With past tightening beginning to take effect, he added, there is ample reason not to hurry another move at this point.

The day's one genuine surprise was Warsh's announcement about future FOMC schedules. From next year, one of the Fed's eight regular meetings will be set aside fully for long-term policy thinking. That means no rate decision will be attached to that gathering. In 2028, two such meetings will be held.

Quite a shift, isn't it? Fewer chances to adjust policy would likely stretch the intervals between decisions, giving each new data release and each scheduled session greater significance. Intermeeting action remains an option, of course. Still, that route is typically reserved for exceptional situations.

Apart from that, market pricing and expectations for December are essentially right where they began.

Another increase is still the default scenario, but Warsh is plainly keen to keep his options open. For all the talk yesterday, the Fed chair has effectively left the next move to the data.