Overnight, the script flipped.
A month ago, CME FedWatch showed a 48% chance of a rate hike on October 28, making a hike almost a “sure thing in waiting.” Wednesday’s CPI came in scorching hot at 3.7%, then Thursday’s PPI blew up to 6.3%. At one point during trading, the odds surged back to 50%, and the airwaves were full of talk that “Warsh would have no choice but to hike.”
Then Warsh stepped in personally to cool things down.
Today, in a conversation with IMF Managing Director Georgieva, Fed Chair Warsh said that over the past month, “everything has adjusted in the direction we expected,” and stressed, “I don’t prejudge meetings.” The futures market got the message instantly: the probability of rates staying unchanged jumped from 72% to 85%, while the probability of a hike plunged from 48% to around 15%.
Why was one statement enough? Three supports:
First, inflation is running hot, but the labor market is cooling—the September jobs report added just 29,000 jobs, giving doves an argument. Second, the 10-year Treasury yield fell back to around 5.10%, a three-week low, while the dollar index weakened. Financial conditions are already “tightening themselves.” Third, there’s the political calculus: UBS reportedly said a rate hike before the November 3 midterm elections would be “politically untenable,” making a December hike the more likely bet.
The direct impact on crypto is that the liquidity narrative is gaining traction again:
$BTC has climbed back above the $82,000 level. Falling yields and a weaker dollar mean the cost of holding non-yielding assets is coming down.
But don’t celebrate too soon. Odds are an emotional roller coaster: falling from 48% to 15% in a week shows that the market itself has no clear idea. There’s really just one test left: whether the October 27–28 meeting’s dot plot is still on the table, and whether the roughly 91% of bets reportedly wagering on at least one hike by year-end will hold. By then, today’s 15% could be turned on its head again.
We’ll know in 10 days.
This is not investment advice. DYOR. Trading involves risk.
#OctoberFedHikeOddsFallToAround17%
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