The market sharply scaled back expectations of a Fed rate hike in October following a key signal

Traders have sharply scaled back their expectations for a U.S. Federal Reserve rate hike in October after John Williams, president of the Federal Reserve Bank of New York, signaled that there is no need to rush into further tightening, according to Barron's. He is one of the voting members of the Fed’s Open Market Committee and is considered one of its most influential members, the publication writes.

The probability that the regulator will raise rates at its upcoming meeting on October 27–28 is now estimated at 47 percent, whereas just the day before it was over 70 percent, according to the FedWatch market sentiment tracking tool .

Speaking on September 29 at the University at Buffalo, the president of the Federal Reserve Bank of New York stated that his baseline scenario calls for only one round of monetary tightening this year. This is in line with the median forecast of the members of the Federal Reserve’s Open Market Committee. At the same time, Williams believes that after the September rate hike, “there is no need to rush.” In his assessment, raising rates toward the end of 2026—that is, in December, when the last of this year’s two remaining meetings will take place—may prove appropriate to keep inflation in check. This will give Fed officials time to gather more information on the trajectory of price increases.

"Williams spoke out quite unequivocally against a second consecutive Fed rate hike in October," Evercore ISI analysts commented in a note cited by Bloomberg.

However, there are also those among Federal Reserve officials who take a more hawkish stance. Almost simultaneously with Williams, Federal Reserve Board member Michael Barr stated that “further adjustments to monetary policy will likely be needed,” as he does not yet see “a clear trend toward a timely return of inflation to [the 2% target].” And Ostan Goolsby, president of the Federal Reserve Bank of Chicago, warned that allowing inflation to remain above 2% for 5.5 years—as the median forecast suggests—is tantamount to “playing with fire.”

Due to the sharp rise in oil prices caused by the Iranian crisis and large-scale infrastructure construction for AI, Williams expects inflation to reach 3.5% by the end of this year. However, as the impact of tariffs fades and energy prices normalize, he forecasts a slowdown next year to just above 2% and a return to the 2% target by 2028. But such a scenario is not guaranteed, the president of the Federal Reserve Bank of New York emphasized.

"While monetary policy cannot make ships sail or reopen pipelines and oil refineries, it can mitigate the risk that [oil] supply shocks will lead to broader and more persistent inflationary pressures,” Williams said.

On Wednesday, September 30, the Fed’s preferred measure of inflation—the Personal Consumption Expenditures (PCE) index—will be released. However, CNBC believes this data is unlikely to serve as an argument against further tightening of the central bank’s monetary policy. Wall Street forecasts suggest that, on a year-over-year basis, the headline and core PCE indices rose by 3.7% and 3.3%, respectively, in August—the same as in July. If confirmed, these figures would indicate persistent price pressures.

“The Fed will look at this data and say, ‘Core inflation isn’t slowing, and we have no reason to expect it to start moving down in any meaningful way,’” Dan North, senior economist at Allianz Trade, told CNBC. “I think inflation has become so entrenched that the Fed will no longer be able to ignore it or attribute it to temporary factors.”

This article was AI-translated and verified by a human editor