Jefferson and Williams' Comments Spark Market Repricing

Two top Federal Reserve officials have seemingly pulled traders back from an October rate increase. Fed Vice Chair Philip Jefferson and New York Fed President John Williams made comments in separate speeches that markets treated as a signal to slow down on bets for another hike. The September 16 decision to raise rates was the first hike since 2023, taken as the broader economy looked to be speeding up and inflation stayed stubborn.

The remarks by Jefferson and Williams seem to suggest that traders had run ahead of the committee, not that the hiking cycle is finished. Goldman Sachs economists said the two speeches together cemented their view that an October increase is unlikely. Krishna Guha, head of economics at Evercore ISI, wrote with colleagues in a note to clients that 'we think the joint message from Jefferson and Williams is authoritative.'

The market move was sharp. Before Williams spoke on Tuesday, federal funds futures put the chance of an October hike at 70 percent. By the time Jefferson finished on Thursday, that probability was around 25 percent. Softer-than-expected inflation data released between the two speeches helped the shift.