Rate hike expectations decline following statements from Fed officials
Cautious messages from Federal Reserve officials and incoming data have significantly reduced the likelihood of a new interest rate hike at this month's meeting.
Recent statements by Fed leaders indicate a need for time to assess the economy, while also pulling down interest rate hike expectations in the markets.
Officials' Messages and Expectations
While Fed Chair Kevin Warsh avoided giving clear signals regarding the future path of interest rates, Vice Chair Philip Jefferson and New York Fed President John Williams adopted a similar approach. Jefferson and Williams emphasized that the Fed has sufficient time before any new rate hike to evaluate the economy.
Rate Changes in the Markets
Following the Fed's rate hike on September 16, investors were pricing in a 70 percent probability of a new hike at the October 27-28 meeting. Following Jefferson's speech on Thursday, this rate dropped to approximately 25 percent, influenced also by inflation data that came in below expectations.
Importance of Future Data
While the officials' statements do not mean the Fed will not implement further rate hikes, warnings continue to be issued that inflation remains high. The consumer price data to be released on October 14 is expected to be decisive in upcoming policy discussions.