USO falls 4.57% as Williams signals no rush on rate hikes

USO fell 4.57% to $143.16 a share as traders cut odds of an October Fed rate hike to 50-50.

WTI oil fell 3.9% to $89.01 a barrel Tuesday, and Brent crude dropped below $103.

The drop in USO follows a pattern seen twice already this month, with earlier pullbacks reversing within days as tensions in the region resurfaced.

New York Fed President John Williams said another rate hike this year may be appropriate but said there is no urgency to move immediately. Traders trimmed odds of an October rate increase to 50-50, down from 70%, and now see just one more increase by year-end. Williams's softer tone on timing follows a week in which Fed officials Michael Barr, Austan Goolsbee and Lisa Cook argued for continued tightening, while Fed Vice Chair Musalem said the AI spending boom is adding to inflation pressure, with productivity gains and supply relief not yet appearing. Barr has also said the 2% inflation target needs policy adjustment, repeating comments he made on September 23.

The pullback in oil cuts against the inflation-persistence narrative that has driven bond yields to multi-decade highs, since crude near $103 to $107 a barrel had been repeatedly cited as a reason the Fed could not look past a supply shock. A near 4% drop in WTI eases that specific pressure, even as investors flagged the risk energy costs stay elevated. Taken together with Williams's patient tone, the day's moves point toward modest relief for rate-sensitive assets rather than a reinforcement of the higher-for-longer case, though the lingering worry over energy costs keeps it from being a clean signal.