US markets put probability of Fed rate hike in October at 71% — CNBC

In the United States, markets estimated the probability of another increase in the Federal Reserve's benchmark rate at the October 27–28 meeting at 71%. These expectations strengthened after comments by Federal Reserve Board Governor Michael Barr and S&P Global data indicating accelerating inflationary pressure, CNBC reports.

Statement by a Fed representative

Speaking at a housing conference in Chicago, Barr said that after last week's 0.25-percentage-point rate increase, the regulator will likely need to further adjust monetary policy. According to him, this is necessary to return inflation to its target level in a timely manner.

Last week, the Federal Open Market Committee raised the target range for the rate to 3.75–4%. Barr supported the decision along with the other 11 committee members who voted. Of the 18 meeting participants who submitted their own forecasts, only two did not expect another rate increase this year.

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Inflation and market reaction

S&P Global said that its overall inflation indicator reached its highest level since October 2022 in September. The company linked this to rising fuel and transportation costs, as well as higher wages.

The preliminary services business activity index rose to 58.7 points, a 59-month high. The manufacturing index increased to 56.7 points, its highest reading in 53 months, while the composite index reached 58.4 points, a 62-month high. Readings above 50 points indicate an expansion in economic activity.

After the data were released, the yield on two-year US Treasury bonds, which are sensitive to expectations regarding Fed policy, rose by more than 13 basis points to 4.9%. The probability of an October rate increase was calculated by the CME exchange's FedWatch tool based on federal funds rate futures.