Investors expect the Federal Reserve (Fed) to hold rates on Wednesday. Morgan Stanley chief US economist Michael Gapen says the Fed hold will still signal more rate hikes ahead.

Markets already price a pause and lean toward a December hike. The statement’s tone, not the decision, could therefore move rate-sensitive assets such as Bitcoin (BTC).

What Would Make a Fed Hold Sound Hawkish?

Gapen told CNBC that the Fed will likely stay put while signaling that rates still have further to climb. The committee, he said, would argue it needs time to assess underlying trends first.

Dissents, meaning votes against the majority, offer one clue. Three officials backed a hike when the Fed held in July, and Gapen expects two on Wednesday.

Fewer dissents would sound more dovish, meaning less inclined to hike, while three would read as hawkish, he said.

Fed Chair Kevin Warsh has declined to preview the decision. Even so, Gapen doubts Warsh, who dislikes signaling future moves, will say further hikes are likely.

The Fed raised rates in September, and Warsh has named October and December as the key decision points.

Can the Economy Absorb More Hikes as Energy Costs Persist?

Tighter financial conditions since the last meeting give officials a reason to move gradually, Gapen said. Market pricing of more hikes is already doing part of the Fed’s job.

However, officials must still decide whether to validate that pricing.

Meanwhile, the Middle East conflict keeps oil and diesel markets under pressure. Gapen would be surprised if Warsh skips second-round effects, meaning energy costs spreading into wider prices.

Gapen said the economy can handle 75 to 100 basis points of total hikes, or up to one percentage point. In contrast, six or seven total hikes, which would return rates to 2023 levels, would present a different picture.

Gapen believes the Fed can hike every other meeting and assess data, but energy markets will influence the pace.

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