Fed Rate Hike in October Priced at 15%, but Warsh Gives No Signal
Futures markets put the chance of a Federal Reserve rate increase at its Oct. 28 meeting at 15% on Friday morning, CNBC reported, based on CME FedWatch pricing.
CNBC's analysis argues that investors may be too relaxed, because Fed Chair Kevin Warsh has stopped telegraphing decisions.
Warsh spoke Friday in Bangkok at the annual meeting of the International Monetary Fund and the World Bank. NBC News reported that he said the economy has broadly moved the way the Fed expected when it met in September and raised rates for the first time since 2023.
Hot Inflation Readings Precede the Meeting
The consumer price index (CPI), a measure of what households pay, rose 3.7% in September from a year earlier, NBC News reported.
Wholesale prices, tracked by the producer price index, jumped 6.3% over the same period, the biggest annual gain since 2022, according to CNBC.
CNBC said the September Fed minutes showed officials expect another increase without saying when. Fed minutes
Fed Officials Signal Comfort With Waiting
Much of the market's confidence rests on other Fed leaders. According to CNBC, Vice Chairman Philip Jefferson and New York Fed President John Williams have recently made remarks suggesting little urgency to raise rates.
Traders have long treated such officials as reliable guides to the chair's thinking. CNBC said that may no longer hold under Warsh.
Warsh Rejects Forward Guidance
Forward guidance is the practice of telling markets in advance what the central bank plans to do. Warsh has repeatedly rejected it, per CNBC, and said Friday he was not signaling a decision either way.
He told the Bangkok audience the Fed had made clear it would deliver price stability, NBC News reported. He also said the Fed no longer announces its moves ahead of time.
CNBC noted that elevated inflation and relatively loose financial conditions could still support a case for a hike.
AI Spending Enters the Inflation Picture
Warsh devoted much of his Bangkok remarks to artificial intelligence.
He described the investment surge in the United States as probably the most important upside force in the global economy, and said he expects it to fundamentally change how monetary policy is conducted, NBC News reported.
The buildout of data centers is driving heavy spending and borrowing by large technology companies. NBC News reported that Apple told it in June that it had never seen component prices rise so much so quickly. Apple and Nintendo have both raised consumer prices.
The Oct. 28 meeting is the next point at which a rate increase could be announced, and as of Friday morning the futures market was betting it would not.