Fed Hike Odds Plummet from 70% to Just Under 20%

The market's expectations for an October interest-rate hike by the Federal Reserve plummeted from 70% to just under 20% over the course of a single week.

The probability, as measured by CME FedWatch data, began at nearly 70% on September 28 but fell to around 25% by Thursday after New York Fed President John Williams and Federal Reserve Vice Chair Philip Jefferson spoke out against an immediate increase. The two-year Treasury yield also declined in tandem with the changing probabilities.

The initial catalyst for this shift was a speech by Williams, who stated that there is no need for urgency and that policymakers have time to gather more information before making any further decisions. This was followed by softer inflation data from the August PCE report, which showed month-over-month increases of 0.3% in total PCE and 0.2% in core PCE.

The final nail in the coffin for an October hike came with Friday's September jobs report, which showed a meager addition of just 29,000 jobs, far below the expected increase of around 90,000. The unemployment rate rose to 4.2%, and average hourly earnings increased by only 0.1% for the month.