Deutsche Bank expects the Federal Reserve to keep interest rates unchanged at next week's Federal Open Market Committee (FOMC) meeting. The bank's Chief U.S. Economist, Matthew Luzzetti, noted that despite September's inflation data broadly exceeding expectations, with core PCE projected to rise to 3.1% to 3.2% year-over-year, Fed Chair Kevin Warsh still needs to pause rate hikes while avoiding market misinterpretation of a wavering commitment to fighting inflation. Deutsche Bank maintains its forecast that the Fed will hike rates by 25 basis points in December and another 25 basis points in March next year, totaling an additional 50 basis points.

The bank anticipates minimal adjustments to the FOMC statement, possibly removing the sentence from the previous statement that explained the rationale for rate hikes. Market focus will be on Kevin Warsh's press conference, where he will need to explain the logic behind pausing rate hikes, reiterate the commitment to price stability, clarify the relationship between financial conditions and the policy rate, and provide qualitative remarks on AI-related market volatility. Deutsche Bank believes the market will closely watch whether Kevin Warsh continues to use the hawkish "withdrawal of an accommodative stance" framework and his assessment that financial conditions remain loose. Kevin Warsh is expected to state that recent inflation trends are inconsistent with meaningful disinflationary progress and mention the Fed's attention to AI-related valuations and financial stability risks.