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22.09.202613:46 Forex Analysis & Reviews: No pain, no gain

Just days after the Fed raised interest rates for the first time in three years, two influential officials signaled in unison: one hike may not be enough, and there is no painless exit from current inflation. While the White House calls for policy to be reversed, rhetoric from inside the Fed points the opposite way — a divergence that could determine the policy path for months to come.

Chicago Fed President Austan Goolsbee said on Monday at an event in London that the central bank cannot afford to ignore recurring and persistent supply shocks. According to Goolsbee, supply shocks are happening more frequently, hitting the economy harder and lasting longer, and once such shocks to inflation become persistent, the logic behind "looking through" them breaks down. That was the core of his message: whereas central banks historically treated one-off price spikes as temporary, Goolsbee argues these shocks — from pandemic supply chain disruptions to oil prices sitting near $100/bbl for much of the year and escalating tariffs — have become a "regular feature" of the economy rather than an exception.

Goolsbee acknowledged that the response to supply shocks need not be as aggressive as the response to demand overheating, but it will not be painless either. This is the painful trade?off between employment and inflation that stagflationary shocks always force on a central bank, he said, adding that in such circumstances, the path back will be difficult. Speaking to reporters after his remarks, he went further: if price pressure is driven by both supply shocks and demand overheating, then the Fed's median projection for one more hike may not be sufficient to restore price stability.

While Goolsbee discussed principles, St. Louis Fed President Alberto Musalem spoke more bluntly in a Reuters interview on the same Monday. He said that persistent demand and repeated supply-side factors continue to keep inflationary risks elevated, and without further tightening, the probability that inflation will be materially above the 2% target in 18 months is greater than it being on target. Musalem, who does not have a vote on the rate committee this year, added that the current policy range of 3.75–4.00% still looks, in his view, on the easy side and therefore does not sufficiently restrain the economy to slow growth and cool inflation. Moreover, he argued that acting earlier with gradual rate increases will cause less economic disruption than taking sharper steps later, effectively making the case for preemptive action now rather than waiting.

Both speeches landed squarely against the backdrop of the Fed's unanimous decision last week to raise the policy rate for the first time in three years and the promise of another hike before year-end. Fed Chair Kevin Warsh described the move as removing a "dose of accommodation" to help bring inflation back to target, but that measured, technical language now contrasts sharply with the much more alarmed tone of his colleagues. The implication is direct: if both regional presidents are right that supply shocks have become persistent and the current policy range remains too easy, committee pressure will build toward an earlier or sharper next move rather than toward a pause.

The contrast is amplified by the political backdrop. After the Fed's decision last week, Trump economic adviser Peter Navarro wrote that one should not hike into an energy price shock, calling Warsh's action possibly the worst first-rate decision among new Fed chairs in modern history. Such harsh criticism from the White House benefits the president, who gains a convenient argument against the regulator's independence, while Warsh loses, forced to balance administration pressure against the increasingly hawkish stance of colleagues like Goolsbee and Musalem.

In my view, the sum of these two speeches points to one conclusion: a camp is consolidating within the Fed that believes markets and politicians underestimate the persistence of inflation, so the next policy move is more likely to be another hike than a pause or, even less likely, a cut, contrary to White House wishes. I don't rule out that Goolsbee and Musalem's rhetoric is laying the groundwork for a firmer signal at the October meeting, which takes place just days before the midterms. In that scenario, the dollar would receive additional support, while gold and long-dated bonds remain under structural pressure longer than the market assumed a week ago.

EUR/USD technical outlook

Buyers now need to consider how to capture 1.1480. Only that would allow a test of 1.1505. From there, a move to 1.1530 is possible, though doing so without support from major players would be difficult. On the downside, I'd expect significant buyer activity only around 1.1455. If bids are absent there, it would be prudent to wait for a new low at 1.1430 or to open long positions at 1.1410.

GBP/USD technical outlook

Pound buyers need to overcome the immediate resistance level of 1.3370 to target 1.3400, above which further progress will be challenging. The next extended target is 1.3435. On the downside, bears will try to seize control at 1.3335. A break below that level would hit bulls hard and could push GBP/USD toward 1.3300 with a view down to 1.3275.

*A análise de mercado aqui postada destina-se a aumentar o seu conhecimento, mas não dar instruções para fazer uma negociação.

Jakub Novak,
Analytical expert of InstaSpot
© 2007-2026

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