Fed Officials' Remarks Spark Cautious Outlook for Rate Hikes

Expectations for an October Federal Reserve interest-rate increase have retreated quickly as softer-than-expected inflation data compounded remarks from senior Fed officials signaling a slower pace of tightening.

The probability of an October hike, which had been around 70% before New York Fed President John Williams spoke on September 29, fell sharply after the comments and weaker-than-expected inflation data.

Williams said that one more rate increase by the end of this year could be appropriate, but there was no need to rush. Two days later, on October 1, Fed Vice Chair Philip Jefferson said policymakers need to carefully assess trends in the data and the outlook when adjusting policy, and that reaching a judgment could take more time.

Market experts viewed the speeches as a clear attempt to recalibrate expectations, indicating the Fed is taking a more cautious approach to future policy decisions. Bloomberg reported on October 2 that Goldman Sachs economists had solidified their view that an October rate hike would be difficult, after weighing the two officials' remarks.