Labor Strength May Lead to More Hikes Than Fed Expects — Market Talk
1525 ET - After studying the Fed's dot-plot, Capital Economics says the Summary of Economic Projections suggests a limited appetite among policymakers for further hikes. While most officials penciled in one more hike for this year, the SEP also implies that the Fed may be content with just two hikes in total in this cycle, Chief North America Economist Stephen Brown says. But Brown thinks Fed officials are underestimating the potential for the unemployment rate to drop more, "meaning we are sticking with our forecast for a third hike in early 2027 as well," Brown says. ([email protected])1512 ET - Cryptocurrencies are roughly flat on a 24-hour trailing basis after the Federal Reserve raised rates as expected. Sector leader Bitcoin is slightly higher than where it was 24 hours earlier, and half a percentage point higher than where it was this morning, according to data from CoinGlass. Other top coins are in the green as well. The market took a tumble on Tuesday after the Senate blocked an industry-friendly bill, setting up Wednesday's rate decision as the next big driver of price action. While higher interest rates make risky assets like crypto less attractive, the broader market seems to have priced in a rate hike, and a rate hold wouldn't have done much to loosen the tight backdrop that Bitcoin is currently facing, analysts at Glassnode say in a report. ([email protected])1436 ET - The Fed hike, despite being expected, could help stabilize bond markets, Resonate Wealth's Alex Guiliano says in a note. The move "marks a clear pivot for the Federal Reserve from talking tough on inflation to specific action." Guiliano adds that "while we would not be surprised to see one more rate hike this year, this is a Fed that doesn't like to show its cards, which may only increase the market's anticipation before each of the next several Fed meetings, leading to more stock market volatility." ([email protected]; @ptrevisani)1435 ET - The big question now is whether the Fed rate hike is one and done or the beginning of another tightening cycle, according to TruStage's Steve Rick. "The Fed should give this increase time to work before determining how much additional restraint is necessary," Rick says. He thinks higher oil prices stemming from the continued conflict in the Middle East could keep inflation elevated, but warns monetary policy works with long and variable lags, and additional increases would put more pressure on consumers and businesses already facing elevated borrowing costs. ([email protected])1431 ET - The failure of the crypto-friendly Clarity Act in Congress removes a positive catalyst for the crypto space but doesn't create any kind of new regulatory shock, Morgan Stanley analysts say in a research note. Regulation of digital assets in the U.S. has already moved materially over the past year, reducing the enforcement risks that historically constrained product development and institutional participation, the analysts say. While the failed vote may hurt near-term sentiment around crypto investing, the industry itself seemed prepared for it, given that prediction market odds for the vote passing had fallen by the time the vote was held, they say. "Disappointment largely priced in," the analysts say. ([email protected])1423 ET - The Fed hikes as expected, but the unanimous decision comes as a surprise "considering that lack of consensus seemed to be the theme with FOMC officials in the last few meetings," Monex USA's Juan Perez writes. An increase in the WSJ Dollar Index gains traction and the gauge is up 0.3%. "Naturally, the U.S. Dollar is gaining some momentum, although the decision was very much priced-in," Perez says. He expects markets to get more volatile during Chairman Warsh's press conference. The dollar strengthens 0.3% against the yen and 0.4% versus the euro. ([email protected]; @ptrevisani)1408 ET - Treasury yields edge higher as the Fed raises interest rates for the first time since 2023 and sends hawkish signals. The central bank hikes by a quarter of a percent, as widely expected, indicating it is willing to battle sticky inflation. "The Committee will deliver price stability," policymakers say in the post-meeting statement. Chairman Warsh's Q&A will be key for markets to gauge his commitment to cooling price increases. The 10-year rises to 4.955% from 4.945% ahead of the rate announcement, while the two-year increases to 4.646% from 4.606%. ([email protected]; @ptrevisani)1351 ET - Canada's housing market stalled in August after five straight months of gains, with resales dipping 0.7% on-month to return to May levels. Royal Bank economist Rachel Battaglia notes the pullback coincided with an escalation in trade tensions, which looks to have rattled buyer confidence while encouraging more sellers to list. Battaglia says it appears to be more of a pause than an inflection point, and stabilization is expected in the back half of 2026 and into 2027 as households navigate tariff headwinds and sentiment recovers. ([email protected]; @RobbMStewart)1342 ET - Canada's ambition to expand non-U.S. exports relies heavily on sector-specific growth opportunities, according to CIBC's Chief Economist Avery Shenfeld. While opportunities exist in machinery, mining and aircraft, Shenfeld notes that major shifts like LNG exports face longer timelines. "There are longer term aspirations to get Canadian LNG to Europe... but a lot of infrastructure would have to come into place, over several years, to do that," he says. Beyond energy, Shenfeld notes that Canadian defence sector is ripe for export, as well as nuclear technology and uranium. In the latter, however, he cautions that it will "depend on the EU's receptiveness to nuclear power." While U.S. tariffs may force Canadian exporters to look elswhere, building the physical and industrial capacity to capture them remains a gradual process. ([email protected])1341 ET - Bitcoin's decline after the crypto-friendly Clarity Act's defeat in Congress has been relatively shallow, analysts at Glassnode say in a report. "Given the news, the fall is small," they say. It appears that new buyers have gone quiet, cutting off the flow of money that had been driving up Bitcoin in the last month, but holders aren't rushing to sell either, they say. Coins are being taken off of exchanges, a move that happens when traders aren't looking to sell their holdings, the analysts say. There is also a wall of "buy" orders sitting within 10% of the current price, which would be triggered if the price drops further and prevent further drawdowns, they say. ([email protected])1334 ET - In California, sales of existing, single-family homes and the statewide median home price both rose in August, according to the California Association of Realtors. Sales last month were up 2.4% from July and up 1.4% from August 2025. The statewide median home price was $901,420, a rise of 1.6% from the prior month and up from the $900,620 figure recorded in August of last year. Buyers remained engaged during the month, "but the recent rise in mortgage rates and continued economic uncertainty could create some headwinds as we move into the fall," says C.A.R. President Tamara Suminski. ([email protected])1323 ET - An expected Fed hike is more likely to solidify the central bank's independence from politics than to significantly curb inflation, Diamond Hill's Henry Song says. "I'm still trying to work out whether Chairman Warsh wants to be going head-to-head with the president this early in his tenure." Song will be watching for indications of whether a hike would be a one-off or the beginning of a cycle. He says a hold could be justified by macro indicators, but it could be interpreted as Warsh bending under political pressure, in which case long-term yields would rise. Futures markets price 93% odds of a hike, according to CME. ([email protected]; @ptrevisani)