Market-implied probability of a October rate increase tumbled from over 25% to under 15% after Fed Chair Kevin Warsh refused to preview the FOMC's decision, despite inflation data running hot.
The odds of a Federal Reserve interest rate hike at the October 27–28 policy meeting have fallen below 15%, according to Bloomberg and CME FedWatch data, marking a sharp reversal from earlier expectations that briefly approached 50% following a stronger-than-expected September inflation report . The shift underscores a growing divergence between economic data—which many economists argue justifies further tightening—and the central bank's carefully calibrated communication strategy.
Warsh's Deliberate Silence
Speaking at the IMF-World Bank annual meetings in Bangkok on October 16, Fed Chair Kevin Warsh declined to signal any inclination toward a rate move. "I won't prejudge the outcome of the meeting," Warsh said. "I don't think it's appropriate to say now what I might do at the upcoming meeting" .
The remarks came just days after September CPI data showed headline inflation at 3.7% year-over-year, with core CPI rising 0.33% month-over-month for a second consecutive strong reading. Producer prices surged 6.3% annually, the fastest pace since March 2022, driven largely by a 9.1% monthly jump in gasoline prices .
Notably, Warsh did not reiterate his earlier characterization of inflation as "too high" a omission that strategists at Commonwealth Bank of Australia cited as a key factor weakening the dollar and unwinding rate-hike bets .
A Series of Coordinated Signals
Warsh's noncommittal stance was preceded by a series of remarks from other Fed officials that collectively dampened expectations for consecutive hikes. On September 29, New York Fed President John Williams said another increase "later this year" might be appropriate, prompting traders to cut October odds from 70% to roughly 50%. Two days later, Vice Chair Philip Jefferson suggested policymakers should take more time before deciding on further tightening, pushing the probability toward 25%. By October 8, Governor Christopher Waller explicitly stated that officials need not tighten at consecutive meetings .
"If they were watching the bond market, they probably said, 'Wow, the market is pricing in much more than we intended,'" said Kathy Bostjancic, chief economist at Nationwide, in reference to the Fed's communication strategy. "So I think it made them uncomfortable, and they decided, 'Okay, let's slow down'" .
Economists Split on the Path Forward
Major institutions have largely converged on a "pause now, hike later" baseline. Citic Securities expects the Fed to hold in October before raising rates by 25 basis points in December. Huatai Securities similarly maintains that financial conditions have tightened sufficiently to justify a wait-and-see approach, with one more hike likely in December . A Reuters poll of 100 economists conducted October 16–20 found 94 anticipating no move this week, while all 100 expected a December increase .
Still, some market participants warn that the data itself argues for action. "The data suggest a hike is imperative," said Ed Al Hussainy, portfolio manager at Threadneedle Investment. "The only thing standing in the way of a hike versus staying on hold is Fed rhetoric" .
Neil Dutta, head of economics at Renaissance Macro Research, pointed to the disconnect between Warsh's reluctance to provide guidance and his colleagues' more explicit signaling. "When you have that kind of disconnect, any meeting can cause a sharp market reaction" .
What to Watch
With no updated Summary of Economic Projections or dot plot scheduled for this meeting, attention will center on the policy statement's wording and Warsh's post-meeting press conference. Traders will parse whether the Committee retains a tightening bias and how Warsh characterizes the recent inflation prints relative to the Fed's 2% target. Current market pricing assigns roughly a 90% probability of a hold this week and a 69% probability of a 25-basis-point increase by December .
The October meeting thus shapes up as a tactical pause within a cycle that remains open a calibration of communication rather than a declaration that the inflation fight is won.