Yesterday’s US inflation data increased interest rate concerns in global markets. The US September consumer price index (CPI) came in above market expectations, negatively impacting market sentiment across risky assets, including Bitcoin, cryptocurrencies, and equities, due to fears of further interest rate hikes.
However, markets believe a pause in interest rates this month is the most likely outcome. CME FedWatch indicates a roughly 70.7% probability that the Fed will leave interest rates unchanged at its October 27-28 meeting. But a potential pause in October does not mean the tightening cycle is over.
The probability of another interest rate hike by the end of 2026 remains high in the market. According to FedWatch data, a 25 basis point rate hike in December is priced at approximately 64.6%, while a 50 basis point hike is priced at 25%. This means that even if interest rates remain unchanged in October, the door remains open for a possible further tightening in December.
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As expectations of interest rate hikes strengthen and uncertainties surrounding the Fed’s interest rate policy continue to grow, Chicago Fed President Austan Goolsbee warned that tighter monetary policy may be implemented in the US if inflationary pressures become persistent.
Goolsbee stated that it was still too early to raise interest rates again, but added that the Fed would need to intervene if high inflation persisted.
Speaking to Yahoo Finance, Goolsbee described the September CPI data as disappointing. He specifically noted the lack of a significant improvement in services inflation as worrying. Goolsbee emphasized that inflation needs to be brought back to the Fed’s 2% target.
At this point, Goolsbee said it was still difficult to assess whether current interest rates were high enough to bring inflation back to the Fed’s 2% target.
Interest Rate Decisions Depend on Data!
He stated that the direction of the inflation trend needs to be confirmed before any further interest rate hike, and that more data is needed.
In this context, Golsbee did not announce a definitive interest rate decision regarding the steps to be taken in the near future. However, he stated that intervention by the Fed may be necessary if inflation continues to remain high. While Golsbee’s statements do not mean that new interest rate increases are certain, they indicate that inflation data will be a determining factor in the course of monetary policy.
*This is not investment advice.
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