Warsh October rate decision: futures see 15% hike risk as guidance norms fade

Futures put a 15% chance on an October hike, but Warsh’s stance on guidance leaves room to surprise and spark volatility.

Ahead of the Warsh October rate decision, futures put a 15% probability on an October hike Friday morning, the report says, yet the chair has rejected the usual pre-meeting guidance that markets rely on. That stance leaves room to move at the Oct. 28 meeting even as pricing leans to a pause.

Guidance conventions look uncertain under the new chair

Kevin Warsh told an International Monetary Fund event in Bangkok that he was not signaling his decision either way, which the report says reinforced market odds of holding. He also said, “The world has broadly conformed to our expectations,” a line that could be read as consistent with the committee’s September view.

The report emphasizes that investors may be leaning on conventions that may not hold. Vice Chair Philip Jefferson and New York Fed President John Williams recently indicated little urgency to hike, and markets repriced toward a hold. But the report says outsiders cannot be sure those signals bind Warsh, who has rejected traditional forward guidance and distanced himself from colleagues’ projections. At his September press conference he said, “Those aren’t my forecasts.”

Inflation and conditions leave a hawkish case open

The report points to fresh inflation readings the chair could cite if he wanted to argue for another move: consumer prices rose 3.7% year over year in September, and producer prices rose 6.3%. Based on those reports, the report says the next core PCE print would imply 3.1% year over year, with headline PCE higher.

Warsh’s Jackson Hole remarks framed inflation as the bigger risk and leaned on what he saw as loose credit conditions. The report notes the Chicago Fed’s National Financial Conditions Index has risen about 0.05 points since then but remains negative, meaning conditions have tightened somewhat yet are still loose overall. Warsh said Thursday the market had “removed a dose of accommodation.”

The report argues that hiking when markets strongly expect otherwise is a recipe for volatility. That would also risk undercutting Jefferson and Williams if their public remarks were seen to guide outcomes. With the FOMC due Oct. 28, the report says Warsh could press for a hike using inflation and financial-conditions arguments, or tack to the committee’s middle. The Fed’s 2% PCE goal, he said at Jackson Hole, “is a firm, fixed target.”

Source: CNBC.
This article was written with AI assistance and reviewed by an editor.
This content is for informational purposes only and does not constitute financial advice.