Warsh withholds October signal while traders favor a Fed hold

At the IMF meetings, Fed Chair Kevin Warsh declined to signal whether rates will change at the October meeting. CNBC reported that Warsh said the Fed would no longer routinely preview its rate decisions and would judge policy meeting by meeting. Traders continue to favor the Fed holding rates in October; expectations for a 25-basis-point increase remain unlikely. Bets on a hold have edged higher since the last update, but the reason for that small move is not clear.

Expectations were steady through much of early October, with a hold strongly favored. A weak September jobs report, showing payrolls grew by 29,000 and unemployment reached 4.2%, pushed the chance of an October hike lower. Then the September inflation report sent expectations sharply the other way: the Bureau of Labor Statistics said consumer prices rose 3.7% over the year and 0.6% in September, above the 3.6% annual forecast. Bets on a hike briefly reached a toss-up before retreating. The recent moves have left a hold favored again, though the inflation report made an increase more plausible than it had been before.

The Fed raised its target range to 3.75% to 4.00% in September, its first increase since 2023. Minutes released October 7 said most officials saw another increase as appropriate by year-end, depending on incoming data. Warsh’s refusal to preview the October decision offers no new indication of which way the Fed will go.

The FOMC meets October 27-28, with its decision due October 28. Officials are expected to remain quiet until then. Traders’ bets put the October change at 0 basis points centrally, with a range from 0 to 25 basis points; they favor a 25-basis-point increase in December and put the year-end rate at 4.25%. Hotter inflation data before the meeting could strengthen the case for a hike, while a change in officials’ signals could also shift expectations.