Federal Reserve Chair Kevin Warsh said in Bangkok on 16 October that policy decisions should focus on data and that the Fed no longer announces its decisions in advance. Investors are still parsing Fed officials’ remarks for signals on the next rate decision.
Markets briefly lifted the probability of an October rate hike from about 20 percent to nearly 50 percent after inflation data came in above expectations. Most of that move was later reversed, and rate swaps then put the October hike probability below 15 percent.
Officials sound out a hike
John Williams said on 29 September that a rate hike later in the year could be appropriate. Philip Jefferson said on 1 October that more time should pass before further hikes.
Christopher Waller said on 8 October that back-to-back hikes were not mandatory. TD Securities’ Gennadiy Goldberg advised clients to position for no Fed rate hike in October ahead of the inflation release due on 14 October.
Communication is the key difference
Kathy Bostjancic, chief economist at Nationwide, said Fed officials saw that rate hikes priced in the bond market were more aggressive than policymakers’ expectations and may therefore have wanted to slow the process.
Ed Al-Hussainy, portfolio manager at Columbia Threadneedle, said current inflation data supports a rate hike. He said the key difference between a hike and holding rates steady stems from the Fed’s communication.
By our market data, the US federal funds rate stood at 3.88 percent as of 15:52 GMT on 25 October, in force since 22 October.
Source: Federal Reserve | Data: FRED — St. Louis Fed
