Article 20 · Economy
Why traders doubt a second Fed rate hike on October 28th, and what could still bring one
The Federal Reserve is the US central bank that sets the cost of borrowing. It meets on October 28th. Traders expect a hold, but hot price data and a chair who gives no guidance keep a hike possible.
What the Federal Reserve decides
The Federal Reserve is the central bank of the United States. Its rate committee sets the federal funds target range, the benchmark behind mortgage rates, credit card rates and business loans.
On October 28th the committee decides whether to raise that range again or hold it at 3.75% to 4.00%. It raised the range on September 16th by a vote of 12 to 0. The statement is due at 14:00 Eastern Time, and Chair Kevin Warsh holds a press conference at 14:30.
Why traders expect a hold
Fed funds futures are bets on where rates will go. They priced an October hike at 17% on October 17th, according to MarketWatch. In a Reuters poll taken from October 16th to 20th, 94 of 100 economists expected a hold. All 100 expected a hike in December.
Two senior officials have argued for patience. Vice Chair Philip Jefferson said on October 1st that the committee's judgement on its next step "may take more time". John Williams, president of the New York Fed, said on September 29th that "there is no need for urgency".
Jobs data pointed the same way. Payrolls rose 29,000 in September, against an expected 90,000.
What could still bring a hike
Prices ran hot. Consumer prices rose 3.7% in the 12 months to September, up from 3.4% in August, according to the Bureau of Labor Statistics. Prices excluding food and energy rose 2.6% over the year, up from 2.4%. Economists polled by Reuters had expected 2.5%.
Producer prices, which measure what businesses pay, rose 6.3% in the 12 months to September. That is the largest 12-month increase since December 2022. Much of the gap with consumer prices is fuel.
The chair is the second reason. On October 16th Warsh declined to preview the decision and said the Fed is "not in that business anymore". Investors have read Jefferson and Williams as speaking for him. CNBC's analysis argues investors may be relying on old assumptions that his deputies speak for him.
Three of this year's voters dissented for a hike when the committee held in July. Former BofA Securities chief economist Ethan Harris called October "a 50-50 call". Oxford Economics expects hikes in October and December.
Pricing has moved with remarks as much as with data. Futures priced an October hike at 64% in late September, then 28% in the week Jefferson and Williams spoke. Pricing climbed sharply after the CPI report on October 14th. It fell to about 15% after Warsh spoke on October 16th.
Who feels it, and what to watch
Borrowers feel it first. Freddie Mac's survey of October 15th put the average 30-year fixed mortgage rate at 7.40%. A hike would lift short-term rates before long-term ones. The European Central Bank decides on October 29th and the Bank of Japan on October 30th, so a surprise in Washington would reach them within days.
The dates to watch:
- October 28th, 14:00 Eastern Time: the Fed statement. Does it keep the line that the Fed "will deliver price stability", and does any member dissent?
- October 28th, 14:30: Warsh's press conference and his reading of September's core inflation.
- October 29th: September personal consumption expenditures (PCE) prices, the Fed's inflation gauge, and third-quarter GDP.
- November 3rd: the midterm elections, six days after the decision.
- December 8th and 9th: the next Fed meeting, with new projections.