Federal Reserve Governor Christopher Waller stated at the Central Bank of the Republic of Türkiye Istanbul Economic Forum that further interest rate hikes are needed due to persistently high inflation, but emphasized flexibility regarding the timing of these hikes, indicating they do not need to occur at consecutive meetings [1]. Waller highlighted ongoing inflationary pressures from the AI buildout and energy shocks, and noted that inflation has been above target for nearly five and a half years, raising concerns about inflation expectations [1]. He also described the US labor market as 'solid and stable' in September, despite a slowdown in job creation, and pointed to evidence of economic strengthening in the second half of 2026 [1].
The release of the Federal Open Market Committee (FOMC) minutes from the September meeting reinforced the likelihood of at least one more rate hike by year-end, with most participants considering another increase appropriate given the stronger economic outlook and persistent inflation risks [3]. Several officials specifically warned that the AI buildout could push aggregate demand ahead of supply, further pressuring prices [3]. Analysts at Societe Generale echoed this view, stating that the FOMC minutes reaffirmed the tilt towards another rate increase before the end of the year [3].
Despite the hawkish tone from the Fed, the US Dollar Index (DXY) showed only a marginal increase, trading near 102.30 and close to its annual high of 102.54 [1][3]. The US Dollar remained firm against major currencies, particularly the Japanese Yen, with the USD/JPY pair trading 0.12% higher at around 158.20 [3]. Over the week, the US Dollar was the strongest against the Swiss Franc and also gained against the Euro and Yen [3]. On the other hand, MUFG’s Lee Hardman noted that while the Dollar index is near year-to-date highs, US rate markets have pared back expectations for further Fed tightening, and the FOMC minutes did not indicate urgency for another hike this month [2]. Instead, the Dollar's strength has been attributed more to negative developments overseas, such as fiscal and political risks in the Euro area, than to imminent Fed action [2].
There is a slight discrepancy in the interpretation of the Fed's stance: while Waller and the FOMC minutes suggest a bias toward further tightening, MUFG's analysis points to a more cautious approach, with the minutes being consistent with one or two more hikes rather than the three or four implied by some market pricing [2].
CONCLUSION
The Federal Reserve maintains a hawkish stance, signaling the likelihood of at least one more rate hike by year-end, which has kept the US Dollar firm against major currencies, especially the Yen and Euro. However, market participants remain cautious, with some analysts noting a lack of urgency for immediate tightening. Overall, the Fed's flexible but persistent approach to inflation is expected to support the Dollar in the near term.