Traders trim odds of an October Fed rate hike to 50-50
Odds fall from 70% as the softer pricing follows Williams's comments that there is no rush to act, even as other officials keep a hawkish tone
Published
Traders now see a 50-50 chance of a Federal Reserve rate hike in October, down from 70% previously.
The shift follows comments from New York Fed President John Williams, who said one more rate hike is likely this year but that there is no rush to act. Traders have since moved to pricing in just one more increase by year end.
The softer tone stands apart from a run of hawkish remarks this week. Fed Vice Chair Musalem said the AI spending boom is adding to inflation pressure and that the Fed cannot ease policy on hopes of AI productivity gains. Fed's Goolsbee said the central bank need not please bond or stock markets. Fed's Barr said the 2% inflation target needs policy adjustment. None of them softened on timing.
The repricing comes after a sharp move in markets on Monday. The 10-year Treasury yield rose seven basis points to 5.23%, its highest level, while gold dropped 3.9% to $4,118.66 on bets that rates would stay higher for longer.
Today's move confirms the repricing that followed Williams's comments rather than adding a new signal, with pricing now settling near 50-50 after having already moved off the two-to-three-hike bets that drove the bond selloff. The gap between the hawkish rhetoric from other officials and where markets are pricing the October meeting is wide, so the next inflation report or Fed speaker carries more weight than usual in closing it. For rate-sensitive assets, the bias from here is modestly bullish, consistent with the relief that followed Williams's remarks, though it marks a continuation of that repricing rather than a fresh catalyst on its own.