October Fed Hike Odds Fall to About 15% After Warsh Remarks
October rate-hike odds fell to about 15% after Fed Chair Kevin Warsh declined to signal another increase, down from about 28% before his remarks. S&P 500 futures rose around 0.2% following his comments.
Despite surging inflation, Federal Reserve Chair Kevin Warsh gave no indication that another interest-rate increase was coming during an IMF event Friday. He discussed artificial intelligence’s potential to transform the economy, and October hike odds fell sharply. Wednesday’s hot inflation report lifted CME FedWatch’s October hike odds from 21% to 54%, putting an increase above even odds. Expectations then receded.
San Francisco Fed President Mary Daly said Wednesday that further hikes were likely, but there was no urgency to act in October. By Friday, before Warsh spoke, the odds had fallen to about 28%. His remarks, which offered no signal of another increase, helped bring them to approximately 15%. On Polymarket, traders assign a 14% probability to an October quarter-point hike, versus 87% for no change.
Trading volume on the market has reached 43.5 million dollars. Traders have not ruled out a further increase: Polymarket’s December market puts the chance of a quarter-point hike at 79%, indicating expectations that the Fed could defer its next move rather than abandon it. The Fed’s Inflation Dilemma “I don’t prejudge meetings,” Warsh said Friday during a At a discussion in Bangkok with International Monetary Fund Managing Director Kristalina Georgieva, Warsh declined to preview the Fed’s remaining decisions this year. He said economic developments had broadly tracked policymakers’ expectations since September’s rate increase.
Consumer prices increased 3.7% year over year in September, while producer prices climbed 1.3% during the month, their biggest rise since March 2022. Last month, the Fed lifted its benchmark rate to 3.75%—4.00%. A weak September jobs report, with only 29000 positions added, complicates the case for another near-term increase. S&P 500 futures gained around 0.2% after Warsh’s remarks, indicating a firmer open for the SPDR S&P 500 ETF Trust (NYSE: SPY).
DBS Bank macro strategist Chang Wei Liang said Warsh’s optimism about AI-driven productivity could ease inflation expectations and “temper fears of back-to-back Fed rate hikes.” AI Boom Pushes Up Tech Prices Warsh called AI “probably the most consequential change” to the US and global economies in his lifetime. He expects the technology to deliver substantial productivity gains and create wealth, while acknowledging that spending is lifting economic demand. He cautioned that the shift could be “very bumpy,” and said its effects on employment over the next 12 to 18 months remain uncertain, before the benefits emerge.
A San Francisco Fed report released Thursday said annual inflation for information-processing equipment was 13% in August, the highest since records began in the 1960s. Researchers tied the rise to AI-driven chip demand, which lifted computer and smartphone prices, but found little evidence of spillover inflation in other sectors. Apple Inc. (NASDAQ: AAPL) raised MacBook prices by as much as $300 in June and also increased iPad prices amid AI-driven memory shortages.