#FedSeptemberMinutesLeanHawkish

Possible Further Rate Hikes This Year! How to Trade Global Markets?

The Federal Reserve's September meeting minutes, released on October 7, 2026, revealed a hawkish stance among most officials. According to the minutes, all 19 policymakers supported the September 25 basis point rate hike, and a majority believed that further increases in the federal funds rate target range could be appropriate by the end of this year. The September FOMC dot plot showed that 12 of 18 year-end rate projections indicated one additional hike, while 4 projected two more increases. The most hawkish participant sees the policy rate at 4.375% in 2026 and 2027.

Despite the Fed's hawkish stance, market expectations differ significantly. According to the CME FedWatch tool, the probability of a rate hike at the October meeting is only around 19.4%, while the probability of maintaining rates unchanged in October is 77.3%. However, expectations for a December hike remain high, with a 67.8% probability of a 25 basis point cumulative hike by December. This divergence reflects market concerns about recent weak economic data, including September non-farm payrolls adding only 29,000 jobs versus the expected 84,000, and a rise in the unemployment rate to 4.2%. Goldman Sachs has pushed its rate hike expectation from October to December, noting that the latest inflation report suggests core PCE growth may be lower than FOMC projections. Several Fed officials, including Williams and Jefferson, have downplayed the possibility of an October hike, with markets now focusing on December as the more likely timing for the next move.

Inflation pressures persist, with the AI investment boom and rising oil prices adding new variables. Fed Governor Lisa Cook stated that AI investment and higher oil prices will continue to push inflation upward in the coming months, and that any further rate hikes will be data-dependent. The AI build-out is already contributing to inflation, with hyperscaler and other AI capital spending estimated to add about 0.5 percentage points to US economic growth in 2026. Meanwhile, the Middle East conflict has disrupted global energy supply, lifting oil and gas prices, with Brent crude futures briefly surpassing $102 per barrel. CommBank expects US inflation to remain above the Fed's 2% target as a result. The room for further rate hikes is constrained by the need to balance inflation control against economic growth, with any moves likely to be gradual and data-dependent.

Escalating tensions in the Middle East are boosting safe-haven demand, pushing the dollar index close to its yearly high. Following increased Iranian attacks on vessels in the Strait of Hormuz, the dollar index DXY rose 0.5% and moved in tandem with oil prices, approaching its high for the year. Almost all G10 currencies fell against the dollar, with the euro performing weakest. The Bloomberg Dollar Index rose as much as 0.5% to 1226.24 before paring some gains. The dollar is acting as a counter-cyclical asset, attracting safe-haven flows as other asset classes are sold off. The combination of Middle East tensions, European fiscal concerns, and elevated oil prices continues to support the dollar's strength.