① The Federal Reserve will announce its latest interest-rate decision in the early hours of Thursday, Beijing time.
② Traders acknowledge that inflation data alone might be enough to prompt bets on a rate hike in October. However, what has left Wall Street uncertain is the Fed's recent string of remarks, which suggest the central bank may pause its rate‑hiking cycle in October.
The Federal Reserve is set to announce its latest interest-rate decision in the early hours of Thursday, Beijing time. While the market broadly expects the Fed to hold steady at this meeting—essentially "slowing down"—Wall Street analysts remain somewhat skeptical.
Earlier this month, ahead of the release of the U.S. inflation report, Gennadiy Goldberg, Head of U.S. Rates Strategy at TD Securities, advised clients to bet that the Federal Reserve would not raise interest rates later this month. His reasoning was that inflation could remain sufficiently moderate to justify keeping rates unchanged. Equally important, several Fed officials have been working in recent days to tamp down market expectations of a series of rate hikes.
However, scorching inflation data soon followed: in September, consumer prices rose at their fastest pace in five months, and a gauge of underlying price pressures also increased more than expected. The Consumer Price Index (CPI) climbed 0.6% month-over-month, while the core measure—excluding food and energy—rose 0.3%.
Traders acknowledge that inflation data alone might be enough to prompt bets on a rate hike in October. However, what has left Wall Street uncertain is the Fed's recent string of remarks, which suggest the central bank could pause its rate‑hiking cycle in October. Federal Reserve Chair Kevin Warsh has expressed hope that markets will gradually wean themselves off such "forward guidance," yet officials' unusually explicit statements are hard to ignore.
On September 29, New York Fed President John Williams said that another rate hike later this year might be appropriate. His remarks prompted traders to lower the probability of a rate hike in October from 70% to around 50%, based on federal funds futures contracts.
Two days later, on October 1, Vice Chair Philip Jefferson also voiced a similar view. He urged policymakers to take more time before deciding whether further rate hikes are warranted, a stance that prompted markets to lower their expectations for the magnitude of future rate increases, bringing them close to 25 basis points.
On October 8, Federal Reserve Governor Christopher Waller stated that officials do not need to tighten monetary policy at every consecutive meeting, a remark that helped reinforce market expectations.
"Wash's remarks are out of step with those of others," said Neil Dutta, chief economist at Renaissance Macro Research. "When that happens, any given meeting could trigger sharp market volatility."
"I think they were watching the bond market at the time and said, 'Wow, the market's pricing in far more rate hikes than we had anticipated,'" said Kathy Bostjancic, chief economist at Nationwide, referring to the Fed chair's remarks. "So I believe that unsettled them, prompting them to decide, 'All right, let's slow down.'"
Bostjancic believes the odds of a rate hike are roughly 50-50, while others hold a more hawkish stance. Ed Al-Hussainy, a portfolio manager at Threadneedle Investments, said, "The data suggest that a rate increase is inevitable. The only factor standing in the way of a hike—or keeping rates unchanged—is the Fed's wording."
Speaking in Bangkok on October 16, Mr. Walsh emphasized that he would not prejudge the outcome of any meeting. During a panel discussion at the International Monetary Fund's annual meeting, he stated: "I do not believe it is appropriate at this time to speculate about what actions I might take at the upcoming meetings this year. The Federal Reserve has turned a new page; we are no longer engaged in the same kind of work as before."
Even so, traders remain focused on the fact that the Fed chair took no steps to dispel market expectations that there would be no action this week—despite the release of inflation data—beyond reiterating the commitment to "price stability."
Matthew Luzzetti, chief U.S. economist at Deutsche Bank, said, "In fact, you can still fit Chairman Warsh and other officials' outlines into the framework: 'We don't rely on data points; we focus on trends in the data.'" He expects further interest-rate hikes in the coming months.
Edited by melody