Market sees next Fed hike in October, following Barr comments and hot inflation reading — SkimNews
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- Michael Barr told a Chicago housing conference that "further policy adjustments are likely to be needed" even after last week's 25-basis-point increase, calling the move an "important action" and saying the committee was previously "out of position" on rates
- S&P Global flash PMI readings hit multi-year peaks with manufacturing at 56.7 (53-month high), services at 58.7 (59-month high), and the composite at 58.4 (62-month high), with S&P's overall inflation gauge reaching its highest level since October 2022
- Chris Williamson of S&P Market Intelligence attributed the input-cost spike to fuel, transport, and rising oil prices, warning the pressures "will add further to the upward pressure on selling prices and inflation in the coming months"
- CME FedWatch odds of a rate hike at the October 27-28 FOMC meeting jumped to 71% from fed funds futures pricing, while the 2-year Treasury yield — most sensitive to Fed expectations — climbed more than 13 basis points to 4.9%
- Employment gauges in the PMI surveys also surged, with services job growth at its fastest pace since June 2002 and manufacturing hiring at its highest since February 2021, as companies added workers to handle order backlogs
- Regional Fed presidents Alberto Musalem (St. Louis) and Susan Collins (Boston), both non-voters this year, separately indicated they see a need for further hikes, adding to the chorus pushing back against speculation the committee would wait until after the November midterms
- Of the 18 FOMC participants who submitted projections last week, only two did not expect another rate increase this year, underscoring how firmly the committee is leaning toward continued tightening
Why it matters: Borrowers face a near-certain October rate hike (71% market probability) just days before the November midterms, with the 2-year Treasury yield jumping 13 basis points to 4.9% in a single session — meaning mortgage rates, auto loans, and corporate borrowing costs are repricing higher before the Fed has even decided. The dual signal of hot inflation alongside surging employment in the PMI data gives the FOMC little political or economic cover to pause.
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