Market odds swing sharply after weak data
Traders pulled back sharply on bets that the Federal Reserve would raise rates in October, following soft jobs numbers and measured comments from a central bank policymaker, per Investing.com. CME Fedwatch data on Wednesday showed a 49.4% chance of a move to 4.25% next month, down from 74.6% a day earlier. Meanwhile, the odds of no change climbed to 50.6%, up from 25.4% the prior day.[S1]
Much of that shift traced to New York Fed President John Williams, who argued that additional tightening was not urgently needed and that one more hike this year should be enough to cool inflation. He said the rationale for further increases had diminished after September's quarter-point move to 4.0%. Upcoming data releases, he added, would clarify the path for the economy and interest rates.[S1]
Data and Fed stance shape the outlook
Separately, JOLTS job openings that came in below forecasts reduced the appetite for rate increases, given that a healthy labor market is one of the Fed's key policy gauges alongside inflation. Soft consumer confidence readings also raised questions about how much further the Fed can tighten. At its September meeting the central bank struck a hawkish tone, with Chair Kevin Warsh restating its commitment to returning inflation to the 2% annual target.[S1]
The August PCE price index, due later Wednesday, is expected to offer additional clues about the Fed's next steps, with core PCE — the central bank's preferred gauge — forecast to remain well above 2%. Friday's September nonfarm payrolls report is likewise widely seen as a factor that will shape expectations for a rate increase.[S1]
