Federal Reserve Chair Kevin Warsh had one last chance to tell markets that this week's hot inflation data had changed his mind about October. On Friday morning in Bangkok, he declined to take it.
Speaking at the annual meetings of the International Monetary Fund and World Bank in a conversation with IMF Managing Director Kristalina Georgieva, Warsh offered no fresh signal that September's upside inflation surprise demanded an immediate response. "Over the month or so that's transpired since then, the world has broadly conformed to our expectations," he said of the Fed's September decision, according to Axios. On the question traders actually cared about, he was explicit: "I don't prejudge meetings. I don't believe in saying now what I might do."
That was the last word. Fed officials enter their pre-meeting communications blackout on Saturday, Oct. 17, and stay silent until Thursday, Oct. 29 — the day after the Oct. 27-28 FOMC meeting concludes.
A Round Trip in Rate Expectations
The week produced a remarkable swing in pricing for a meeting less than two weeks away. September CPI, released Wednesday, rose 3.7 percent from a year earlier against expectations of 3.6 percent, with core CPI at 2.6 percent versus a 2.5 percent forecast. Thursday's producer price report added a 1.3 percent monthly jump in final demand prices.
Hike odds spiked on the data. Snapshots of CME Group's FedWatch tool vary by the hour they were taken — 24/7 Wall St. cited 41.5 percent on Thursday, up from 22 percent before the CPI print, while Seeking Alpha reported the gauge retreating to 27.1 percent from 50 percent in the prior session. By Friday, after Warsh spoke, ActionForex put the probability of a quarter-point increase at 16.1 percent, with the odds of no change at 83.9 percent, up from 72.3 percent a day earlier.
The destination is roughly where the week began: odds stood at 17.7 percent on Oct. 8. Futures still point to a hike eventually — December pricing has held near 90 percent — just not this month. The target range is currently 3.75 to 4.00 percent.
The Chorus Behind the Chair
Warsh was the last of several officials to cool expectations rather than feed them. Governor Christopher Waller noted that rate increases need not come at consecutive meetings. Vice Chair Philip Jefferson and New York Fed President John Williams both signaled no need to rush. Governor Michelle Bowman said the Fed had time after its September hike to watch how markets and the economy respond. San Francisco Fed President Mary Daly split the difference, saying it is "more likely than not that additional policy adjustment will be needed" while seeing "no urgency to act." Minneapolis Fed President Neel Kashkari declined to predict the outcome at all.
None of them disputed that inflation is uncomfortable. Warsh himself said it is "hard to be in a discussion with central bankers and not compare notes and hear the same thing about the surge in prices."
The Calendar Nobody Mentions
There is a complication officials have left unspoken. The Oct. 28 decision lands six days before the Nov. 3 election. Since 1990, the Fed has raised rates within a week of Election Day exactly once, on Nov. 2, 2022. UBS called an election-eve move "politically untenable."
Markets moved accordingly. The dollar index slid toward 101.69, down from a peak of 102.945, while Treasury yields eased — the two-year near 4.76 percent, the 10-year at 5.11 percent and the 30-year at 5.45 percent. Gold was $4,168 an ounce as of 9:05 a.m. ET, up 0.51 percent on the day, with silver at $57.84 as of 7:45 a.m. ET.
Sources: Axios (Courtenay Brown), ActionForex, Seeking Alpha, 24/7 Wall St. via Yahoo Finance, Fortune, Seoul Economic Daily, CME Group FedWatch tool