Fed expected to hold Wednesday, with a possible December hike

Macro & central banks

• The Fed is expected to keep rates unchanged on Wednesday after its September hike, the first since 2023. According to Deutsche Bank, most of the attention will go to Kevin Warsh's press conference.
• Goldman Sachs expects a pause this week followed by a second hike in December, reflecting a compromise among FOMC participants to raise rates every other meeting.
• Economist David Mericle says the Fed's hawkish shift has tightened overall financial conditions moderately since September, far less than the four hikes the market had priced in. A key question is how the statement will reword its reference to the September hike.
• In the UK, Deutsche Bank expects a larger than anticipated investment plan on Wednesday, with a 20.4 billion pound expansion that would not breach fiscal rules.
• In Pakistan, the central bank raised its policy rate by 50 basis points to 12%, its first hike since April, as inflation remains above target and energy costs climb.

Tech & AI

• According to BofA Global Research, AI-related capital spending has risen by 1.2 points of GDP since Q1 2020, outpacing the 1970s oil boom and the 2010s shale expansion at comparable stages. Only the 1990s tech cycle, at about 1.5 points, still ranks higher.
• A Fed study estimates data center investment contributed about 0.20 percentage points to US GDP growth in 2025 and will add about 0.40 points in 2026. Data centers now account for nearly 46% of private office construction spending, up from under 5% a decade ago.
• Earnings from major technology companies are on this week's calendar.

Geopolitics

• In Israel, Netanyahu's office has denied reports of a possible escalation against Iran before the elections. Defense Minister Israel Katz said Israel never intended to attack Iran before the vote, while adding that it would respond to any new Iranian attack.
• The Kremlin says upcoming three-way talks between Russia, Ukraine and the United States, expected in several weeks, will not restrict either side's military operations.
• In Brazil, markets fell after Lula's re-election. Finance Minister Dario Durigan aims for a higher primary surplus next year and said the central bank will intervene in the currency market if needed.

What to watch today

• Tuesday: Israeli legislative vote, amid tensions with Iran.
• Wednesday: Fed decision, Kevin Warsh's press conference and the UK budget announcement.
• This week: US economic data and results from major tech companies, with no consensus figures in the available material.