Warsh Boosts October Rate-Hold Bets Despite Hotter-Than-Expected Inflation

Federal Reserve Chair Kevin Warsh signaled support for leaving the benchmark interest rate unchanged this month, sharply weakening market expectations for another increase.

Bloomberg reported on October 16 that Warsh, speaking at the International Monetary Fund's annual meeting in Bangkok that day, said the Fed had tightened monetary policy "somewhat" about a month ago and would not prejudge decisions at upcoming meetings.

Warsh avoided offering specific comments on the outlook for the U.S. economy or the direction of monetary policy. Still, he said economic conditions since the Federal Open Market Committee's September meeting had broadly evolved in line with the Fed's expectations.

After his remarks, market expectations for a rate increase fell sharply. The probability of a hike at the October 27-28 FOMC meeting dropped from about 27% before his comments to below 15%. Futures on major New York stock indexes rose, while the dollar edged lower.

Wall Street analysts also leaned toward a pause. Goldman Sachs said recent comments from Warsh and other Fed officials suggest the central bank will skip a rate increase in October and deliver its final hike of the year in December.

The Fed raised its benchmark interest rate by 0.25 percentage point in September.

Meanwhile, U.S. inflation data released earlier this week all came in above market forecasts. The consumer price index rose 3.7% in September from a year earlier, topping expectations of 3.6%. The producer price index also rose 1.3% from the previous month, well above the 0.5% forecast.