Fed chair Kevin Warsh isn’t committing to another rate hike this month, and traders are increasingly betting he’ll wait — despite inflation data showing price pressures reaching more of the economy.
The odds of an October hike are falling to roughly 15%, according to Bloomberg’s bond futures pricing, down from 33% after Wednesday’s hot consumer price report and 24% before its release.
That retreat began before Warsh spoke at the IMF gathering in Bangkok, where he declined to preview the Fed’s next decision. “I don’t prejudge meetings,” he said.
Treasury yields are retreating too.
The 10-year yield (^TNX) is hovering near 5.07%, roughly 29 basis points below its October 7 intraday high. The 30-year yield (^TYX) is near 5.42%, down roughly 32 basis points from its peak that same day. Both are edging lower again today.
The inflation details are less reassuring.
Bank of America calculates that 55% of the core consumer price basket is experiencing three-month annualized increases above 2.5%. Its economists still expect an October hike.
That connects to a concern Warsh raised at Jackson Hole in August: how widespread price increases remain. His analysis examined a different inflation measure, personal consumption expenditures, but similarly looked beyond the headline number to gauge underlying pressures.
Traders aren’t abandoning further tightening. Futures still price roughly one quarter-point hike by December. Watch whether inflation pressures keep broadening when the government releases its PCE inflation report on October 29 following the next Fed decision the day before.