Traders are overwhelmingly expecting the Federal Reserve to pause interest rate increases when it meets on October 28, with futures markets assigning just a 15% probability to a hike as of Friday morning. However, the Fed's new chairman, Kevin Warsh, has signalled he may not follow the traditional practice of publicly telegraphing the committee's decision before the meeting takes place.
Recent remarks by other Fed officials, including Vice Chairman Philip Jefferson and New York Fed President John Williams, suggested comfort with holding rates steady, which reassured markets about the likelihood of a pause. However, Warsh has repeatedly rejected the convention of telling markets his plans in advance, potentially making investors complacent about the risk of a surprise move.
An argument for a rate increase exists in recent inflation data. The consumer price index rose 3.7% year over year through September, while the producer price index gained 6.3%. These readings suggest the Fed's preferred inflation measure, core personal consumption expenditures, will come in around 3.1% year over year. Warsh has emphasised that the Fed's 2% inflation target is a firm goal.
At a Jackson Hole speech in August, Warsh described the economy as growing strongly with inflation a greater concern than the jobs market. He cited loose credit conditions as a worry, though the Chicago Fed's National Financial Conditions Index remains negative overall despite recent tightening. The full picture of Warsh's thinking will emerge at the committee's press conference after the October meeting.