October Hike Odds Plummet as Fed Officials Signal Caution

The Federal Reserve faced intense speculation about another interest-rate hike in October, but market odds have dramatically shifted over the past week. On Monday, September 28, markets priced a roughly 70% probability of a 25-basis-point increase at the Fed's October 27-28 meeting, according to CME FedWatch data.

The probability began to decline after New York Fed President John Williams said on Tuesday that there is no need for urgency and policymakers have time to gather more information. By the end of the day, the likelihood of an October increase had fallen to around 50% from nearly 70% earlier that day.

On Wednesday, inflation data showed August PCE inflation increased 0.3% month on month and 3.4% year over year, while core PCE rose 0.2% on the month and 3.0% annually. Both monthly measures came in below expectations, causing market pricing to drop further.

The repricing accelerated again on Thursday after Fed Vice Chair Philip Jefferson delivered a speech at the University of Virginia. By Friday's payrolls report, markets were pricing only about a 25% chance of an October hike, down from roughly 70% at the start of the week.