Fed October hike odds fall as CME sees 77.9% hold probability

  • Cautious Fed officials, softer inflation and a weak September jobs report reduced expectations for an October rate increase.
  • CME FedWatch on Oct. 5 showed 77.9% odds of unchanged rates through October versus 22.1% for a cumulative 25-basis-point increase.
  • Markets still priced a possible December increase, while elevated Treasury yields, mortgage rates and Brent crude above $100 kept financial conditions and inflation risks elevated.

Expectations for an October Federal Reserve rate increase weakened after cautious remarks from New York Fed President John Williams and Fed Vice Chair Philip Jefferson, softer inflation data and a weak September jobs report. CME FedWatch on Oct. 5 put the probability of unchanged rates through October at 77.9% and a cumulative 25-basis-point increase at 22.1%. For December, the tool showed 11.4% odds of unchanged rates, 62.3% for a cumulative 25-basis-point increase, 24.3% for 50 basis points and 2.1% for 75 basis points. Employers added 29,000 jobs in September versus roughly 90,000 expected, unemployment rose to 4.2%, August payroll growth was revised to 133,000 from 162,000, and average hourly earnings increased 0.1%. Goldman Sachs chief economist Jan Hatzius still expects one quarter-point increase in December, although another soft inflation reading could eliminate that move. The Fed's benchmark range stands at 3.75%-4.00%, while elevated Treasury yields, mortgage rates and oil prices could keep financial conditions tight even if policymakers pause.

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