Fed rate hike bets for Oct fall sharply on soft data, dovish comments

Markets have significantly reduced their expectations for a Federal Reserve interest rate increase in October after experiencing soft labor data and dovish remarks from an influential policymaker. The probability of the Federal Reserve raising rates to 4.25% in October has plummeted to 49.4%, from a previous 74.6%, according to CME Fedwatch.

Concurrently, the likelihood of a rate hold has surged to 50.6%, up from 25.4%. This swing in expectations can be attributed to New York Federal Reserve President John Williams' statement that there is "no need for urgency" in raising rates and that the central bank only needs one more hike this year to control inflation. Williams explained that the demand for additional hikes has decreased after the Fed raised rates by 25 basis points to 4.0% in September.

He also indicated that forthcoming data would provide more insights into the economy and interest rates. Additionally, softer-than-expected JOLTS job openings data and weaker consumer confidence have negatively impacted rate hike predictions, as sustaining stable employment and low unemployment rates are crucial factors for the Fed in determining interest rates.

The upcoming PCE price index data for August and September nonfarm payrolls data are expected to offer further guidance on the Fed's future rate decisions, with core PCE currently well above the 2% target.