The Likelihood of a Fed Rate Hike Has Dropped Sharply—Here’s Why and the Latest Update

Market expectations that the Fed will raise interest rates again in October have significantly declined following comments by New York Fed President John Williams. Williams stated that there is “no need to rush” into a new monetary policy step, causing the probability of an October rate hike, as priced in by the markets, to fall from approximately 70% to 50%.

Williams, who holds a key position in the Fed’s monetary policy decisions, said that inflation remains at very high levels and that a rate hike towards the end of the year might be more appropriate. However, she argued that the Fed has had sufficient time to evaluate new economic data following its September meeting.

Williams stated in Buffalo, “With the policy step we took at our September meeting, there is currently no situation that requires us to act urgently.”

The New York Fed President’s remarks reinforced expectations that the Fed might postpone its next interest rate hike to December instead of October. Williams stated that another rate hike might be necessary later in the year, while emphasizing that the Fed’s primary priority remains controlling high inflation.

While previous forecasts from Fed officials indicated at least one more interest rate hike by the end of the year, Fed Chairman Kevin Warsh’s hawkish messages had also raised investors’ expectations of another increase in October.

However, these expectations weakened significantly after Williams’ remarks. According to CME Group data, the market probability of the Fed raising interest rates at its October 28 meeting fell from approximately 70% before Williams’ speech to around 50%.

*This is not investment advice.