Traders now assign only a 17% chance to a Federal Reserve rate hike in October, down from close to 36% a week ago, after a weaker-than-expected September employment report. CME's FedWatch tool, based on trading in 30-day interest rate futures, shows those odds, while prediction market platform Kalshi puts the chance of an October hike at just 18%, down from almost 70% a week ago. The U.S. economy added only 29,000 jobs in September, below estimates for a gain of more than 80,000. Odds for an October hike also fell midweek after Wednesday's release of the personal consumption expenditures price index, the Fed's preferred inflation gauge, which showed core prices excluding food and energy rose 3% in August, lighter than consensus estimates for a rise of 3.3%. Adam Schickling, a senior economist at Vanguard, said the report strengthens the case for the Federal Reserve to remain patient, adding that the labor market has not deteriorated sharply but there is also little evidence it has meaningfully strengthened. While traders now think an October hike is unlikely, they still forecast a December increase, with FedWatch odds above 75% and Kalshi odds at 65%. The Federal Reserve is set to announce its next decision at the conclusion of a two-day policy meeting on Oct. 28.
Weak September jobs report and softer core PCE cut October Fed rate-hike odds to ~17%, implying the policy rate stays lower than previously expected.
Falling odds of a Fed rate hike after weak jobs and softer inflation data push Treasury yields lower.
