The Fed's monetary policy decision-making body, the FOMC, is deeply divided. That was probably the most important message from yesterday's meeting and press conference with Fed Chair Jay Powell. According to the Fed Chair, opinions on how to proceed differ significantly. Some would favor continuing interest rate cuts, while others believe it is appropriate to pause. At opposite ends of the spectrum are Stephen Miran, who once again voted for a more substantial interest rate cut of 50 basis points, and Kansas Fed President Jeffrey Schmid, who voted for unchanged interest rates, Commerzbank's Head of FX and Commodity Research Thu Lan Nguyen notes.

FOMC split highlights deep divisions within the Fed

"All in all, another interest rate cut in December, as the market had largely expected (based on Fed Funds Futures), would be anything but a foregone conclusion, according to Powell. The meeting thus turned out to be far more hawkish than expected. No wonder the dollar appreciated in the wake of the comments. Our economists also admit that the risks of an interest rate move in December have increased. In this respect, part of the dollar's strength is justified."

"But it's not over yet. Is it really surprising that some of the central bankers don't want to commit themselves at this point? Powell pointed out that the Fed does have data to assess the current situation on the labor market. However, without the official labor market statistics, its picture remains more than hazy. Against this backdrop, I have a lot of sympathy for not wanting to commit six weeks before the next meeting and without knowing whether the data gap will end by then."

"What is more striking is that, in addition to Miran, other FOMC members are also advocating for interest rate cuts despite the lack of data (albeit not quite as aggressively as Miran). The decisive factor is which direction the majority leans toward. Powell did not reveal this yesterday. I would therefore be cautious about already breaking out into great USD euphoria."