News & analysis
Fed Officials Line Up Against an October Hike as CPI Looms
Fed funds futures put less than a 20% chance on a hike at this month's FOMC meeting, but a hot September CPI print could revive the dollar trade that has been fading.
Key points
- Fed funds futures now assign less than a 20% probability to a rate hike at this month's FOMC meeting.
- Williams, Jefferson and Waller have all recently voiced caution about back-to-back rate increases.
- September CPI on 14 October is the key test: a hotter-than-expected print could revive hike expectations and dollar strength.
Traders have sharply discounted the odds of another Federal Reserve rate increase at this month's FOMC meeting, with fed funds futures pricing less than a 20% probability of a hike. The shift follows a run of cautious commentary from senior Fed officials, including New York Fed President John Williams and Vice Chair Philip Jefferson, who last week signaled reluctance toward back-to-back increases. Governor Christopher Waller echoed that caution this week, leaving the central bank's senior leadership broadly aligned on holding policy steady in the near term even though their views on inflation differ.
The alignment among Williams, Jefferson and Waller matters because it narrows the range of plausible outcomes at the coming meeting. Williams and Jefferson spoke last week, and Waller added his voice this week. The three officials do not share identical inflation diagnoses, but they converge on the near-term policy decision, which reduces the odds that a single dissenting view tips the committee toward another move. For traders holding positions tied to the front end of the curve, that convergence is the operative signal: the burden of proof has shifted onto the incoming data rather than onto the officials themselves.
That data test arrives on 14 October with the release of September CPI. The supplied analysis frames the condition explicitly: unless the inflation reading exceeds market expectations and materially intensifies inflation concerns, a revival in rate hike expectations will be difficult to achieve. The same logic extends to the dollar. Broad dollar strength would likely push USD/JPY above its closely watched 200-day moving average only if CPI and a speech by Chair Warsh instead trigger a sharp reversal in expectations and markets once again come to expect an October hike. In other words, the dollar's next leg higher is contingent on a data surprise, not on the current policy tilt.
Chair Warsh's speech will draw considerable attention as the next scheduled communication event, but the supplied analysis cautions that his reluctance to pre-empt policy decisions means he may offer few clues ahead of the FOMC meeting roughly two weeks later. That leaves CPI as the dominant near-term catalyst. The mechanism is straightforward: rate hike expectations support the dollar by widening the interest rate differential between U.S. and foreign deposits. When those expectations fade, as they have with futures pricing below 20%, that support weakens. A CPI print that reverses the narrative would restore it; a soft print would reinforce the current drift.
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