The market now sees a 22% chance the Fed doesn't hike again this year
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The Fed funds futures marketr now sees a 22% that the Federal Reserve is done hiking rates for this year. That's a big swing to where we were after the CPI report, which is the most-revelant number the Fed should be thinking about next week. Instead, the market is focused on how
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4 itemsSticky US inflation justifies a Fed rate hike
The FX desk reads the hot August US CPI print as a near-locked catalyst for a 25bp Fed hike at next week's FOMC, with Chair Kevin Warsh pushing the hawkish case and an FOMC majority expected to follow. Per the full note from ING, headline and core both beat: headline matched the 0.4% MoM / 3.4% YoY consensus while core printed 0.290% MoM (2.4% YoY), well above the 0.2% MoM expected and materially above the 0.17% MoM trend rate required to bring inflation to 2%. Critically, the Fed's preferred core PCE deflator is running hotter still at 3.3% YoY — this is not a gasoline-only story. Futures have already priced the move at an 85% probability of 25bp, so the trade is in the follow-through, not the event. With no tracked currency pair in our coverage set and no high-impact events on the calendar in the next 30 days, the desk's directional call and the market's pricing of the Fed path itself are the only instruments in the trade.
ICYMI: Citi now expects a December Fed rate hike after hotter September US inflation
Citi's recent forecast shift to anticipate a December Fed rate hike fundamentally reshapes the market's approach to U.S. monetary policy. Following a hotter-than-expected CPI print for September, where headline inflation rose to 3.7% year-over-year from 3.4% in August, traders are reassessing the timing of Fed moves and the implications for the U.S. dollar. Per the full note [source], Citi now expects a 25 basis point increase in December, marking a significant deviation from their previous stance of no hikes for the year, which substantially aligns with market pricing that anticipates a 94% likelihood of a December rate increase. Furthermore, the potential for an earlier hike in October saw implied probabilities jump to roughly 47% post-data release, indicating robust market reaction to inflation trends and Fed commentary moving forward.
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