Markets Price 71% Chance of October Fed Rate Hike
Expectations rose after hotter inflation readings and hawkish comments from Fed Governor Michael Barr.
Markets priced a 71% chance of another Federal Reserve rate hike in October on Wednesday, as hotter inflation readings and supportive comments from Fed Governor Michael Barr lifted expectations for tighter policy.
The Federal Open Market Committee is scheduled to meet Oct. 27-28. The pricing followed a flash business survey showing overall inflation at its highest level since October 2022, alongside stronger activity in both manufacturing and services.
The survey’s composite activity index rose to 58.4, while the services index reached 58.7 and manufacturing rose to 56.7. Readings above 50 indicate expansion. Input costs also increased at their fastest pace in four years, with fuel, transportation and wages adding to price pressures.
Barr said policymakers still have more work to do after last week’s quarter-point increase, which brought the federal funds target range to 3.75%-4%. “In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion,” he said.
The 2-year Treasury yield, which is sensitive to interest-rate expectations, rose more than 13 basis points to 4.9%.
