One week before October meeting, traders favor a Fed hold

With one week until the Fed’s October meeting, traders strongly favor no change in interest rates. The Fed raised its target range by 25 basis points at its September meeting, leaving the upper bound at 4.00%. A hold would keep that range unchanged; an increase would mean the October meeting did not produce the outcome traders currently favor.

A Reuters poll published Tuesday found 94 of 100 economists expect an October hold, while all 100 expect an increase in December. That is a snapshot of economists’ views, not new Fed guidance: no decision or fresh signal from the central bank has been announced since the previous coverage.

Bets on a hold were steady and strong through much of early October, then weakened sharply after September inflation data came in hotter than expected on October 14. The Bureau of Labor Statistics reported that consumer prices rose 0.6% from the prior month and 3.7% over the year. Earlier coverage linked that release to renewed concern about an October increase. Expectations for a hold recovered around October 16, when Fed Chair Kevin Warsh declined to preview the decision, according to the Associated Press. They have since remained firmly in favor of no change, with only modest day-to-day movement.

The Fed last raised rates on September 15–16, after a September jobs report showed just 29,000 new payroll jobs and unemployment at 4.2%. Earlier coverage said that weak report reduced the case for an immediate further increase. The inflation report later pulled expectations in the other direction, but the Reuters poll suggests economists still see a hold as the clear October outcome.

The FOMC meets October 27–28. Its statement will show whether the upper bound stays at 4.00% or rises. Traders and economists expect different decisions later: Reuters’ poll found unanimous expectations for a December increase. Further Fed guidance or new economic data could alter the outlook before the October statement.