Fed minutes due Wednesday as odds of an October hike fade
The Federal Reserve releases minutes from its September meeting on Wednesday, when it raised rates for the first time since 2023. Since then, a weak jobs report and cooler inflation have cut the odds of another hike this month to about 1 in 5. Traders still expect an increase in December.
Investors get a closer look at the Federal Reserve's thinking on Wednesday, when the central bank releases minutes from its Sept. 15-16 meeting. At that meeting, the Fed raised its key interest rate by a quarter point to a range of 3.75% to 4%. It was the Fed's first increase since 2023, Realtor.com noted, aimed at inflation that has stayed above the Fed's 2% target for five years, according to CNBC.
The minutes should reveal how strongly officials argued for additional increases. Fed officials' projections in September put the median rate at 4.1% by year-end, which leaves room for one more hike, Investing.com reported.
Since that meeting, the economic data have cooled. The economy added only 29,000 jobs in September, well below forecasts of more than 80,000, CNBC reported. The unemployment rate rose to 4.2%, and the government revised earlier months lower. July now shows a loss of 10,000 jobs instead of a gain, according to Investing.com.
Inflation also came in softer than expected. Core prices in the Fed's preferred gauge, which leaves out food and energy, rose 3% in August from a year earlier, below the 3.3% economists expected.
Traders reacted quickly. Odds of a hike at the Oct. 27-28 meeting fell to 17% on CME's FedWatch tool on Friday, down from about 36% a week earlier, CNBC reported. On the prediction market Kalshi, the odds dropped to 18% from almost 70%. By Monday, FedWatch put them closer to 22%, according to Investing.com.
"This report strengthens the case for the Federal Reserve to remain patient," said Vanguard senior economist Adam Schickling.
Patience is not the same as a reversal, however. Traders still see better than a 75% chance of a hike in December on FedWatch, CNBC reported. And long-term borrowing costs have stayed high. The 10-year Treasury yield sat near 5.3% on Monday, close to its highest level since 2002, even as the Nasdaq hit a record.
Some background: Fed minutes come out three weeks after each meeting. They do not change policy, but they show the debate behind a decision, which can move markets.
The next big test comes Oct. 14, when the government reports September consumer prices.
What we know: The Fed raised rates in September, and markets now doubt an October follow-up.
What we don't: How many officials want to keep raising rates, and how fast.
Where outlets agree CNBC and Investing.com both report that the September jobs report showed just 29,000 new jobs and that Kalshi traders put the chance of an October hike at about 18%.
Where they differ Futures pricing on CME FedWatch has moved between 17% and 22% for an October hike, and both measures still point to a likely increase in December.