Credit Agricole: Review of Last Week & Updated Forecasts

The Fed delivered a unanimous 25bp hike in September, lifting the target range to 3.75%-4.00% and easing some concerns around policy credibility. The meeting leaned hawkish beyond the hike itself: the 2026 median dot pointed to one additional increase this year, the 2027 median stayed at 4.125%, and eight officials projected higher rates at end-2027 than at end-2026. The statement also pointed to a slightly firmer growth backdrop, noting resilient domestic spending and removing language that had attributed some inflation pressure to supply shocks. Warsh kept his hawkish tone in the press conference, stressing inflation and arguing that financial conditions are not clearly restrictive. Combined with strong non-housing data, including a sharp upside surprise in retail sales, the meeting makes a one-and-done hike look less likely. The updated base case is for further hikes in December and March, taking the upper bound to 4.50%, followed by a long pause before cuts begin in late 2027.