Fed's Kevin Warsh could still surprise markets with an October rate hike
Traders put only a 15% probability on a hike at the Oct. 28 meeting, but the new Fed chair has resisted telling markets his plans in advance.
At a glance
- Futures markets put a 15% probability on a Fed rate hike at the Oct. 28 meeting, as of Friday morning.
- US consumer prices rose 3.7% and producer prices 6.3% in the year through September, implying core PCE near 3.1%.
- Chair Kevin Warsh has refused to pre-announce his plans and calls the Fed's 2% PCE goal a firm, fixed target.
Federal Reserve Chair Kevin Warsh said at an International Monetary Fund event in Bangkok on Friday that he was not signalling a decision either way on interest rates, but his refusal to pre-announce his plans leaves open the possibility of a hike at the Fed's Oct. 28 meeting, where traders overwhelmingly expect a hold.
Futures markets put just a 15% probability on an October increase as of Friday morning, a judgment that followed recent remarks by Fed Vice Chairman Philip Jefferson and New York Fed President John Williams indicating they saw little urgency in raising rates. Markets repriced toward a hold after those comments.
Warsh, Jefferson and Williams form an informal decision-making group at the top of the Fed known as the troika. According to CNBC's analysis, one assumption behind the market's calm — that the chair's top lieutenants speak for him — may no longer hold under the new leadership.
Inflation data
The latest price data gives Warsh grounds to argue for an increase. The consumer price index rose 3.7% in the year through September, while the producer price index gained 6.3%. On that basis, core personal consumption expenditures — the Fed's preferred inflation measure — would come in at about 3.1% year over year, with headline PCE higher because of energy prices.
Warsh has said figures at that level are a problem. At a closely watched speech in Jackson Hole, Wyoming, in late August he described an economy growing strongly, with inflation a greater worry than the jobs market, and he has been unequivocal that the Fed's 2% PCE goal "is a firm, fixed target."
That hawkish position helped set up a unanimous rate increase at the September meeting, after which the median Fed official expected one more hike in 2026 — leaving room to pause in October and raise again in December. But Warsh distanced himself from those projections, telling a reporter at his September press conference: "Those aren't my forecasts." In Bangkok he said of the economy since September that "the world has broadly conformed to our expectations."
Financial conditions have tightened only modestly since the summer: the Chicago Fed's National Financial Conditions Index has risen about 0.05 points since Jackson Hole but remains negative, indicating conditions are still loose overall. Warsh noted on Thursday that the market had "removed a dose of accommodation"; whether he considers that sufficient is not known. CNBC's analysis concludes it is risky to assume the Fed's next move is settled.
Source: CNBC.
Questions and answers
- Will the Federal Reserve raise interest rates in October 2026?
- Traders price only about a 15% chance of a hike at the Oct. 28 meeting. But CNBC reports that Chair Kevin Warsh, who has not signalled his intentions, has left room to push for an increase.
- What is the Fed troika?
- It is an informal decision-making group at the top of the Federal Reserve made up of Chair Kevin Warsh, Vice Chairman Philip Jefferson and New York Fed President John Williams. Jefferson and Williams recently indicated little urgency to raise rates.
- What did the latest US inflation data show?
- The consumer price index rose 3.7% in the year through September and the producer price index gained 6.3%. The figures imply core PCE, the Fed's preferred gauge, will come in around 3.1% year over year, with headline PCE higher.
