Hawkish Fed minutes, soft data: why traders still expect the Fed to hold in October
The Federal Reserve published the minutes of its September 15–16 meeting on Wednesday, October 7. On paper they read as a clear warning that rates are going higher. The market response was more muted. Traders kept betting that the October 27–28 meeting ends with no change. The gap between what the Fed says and what futures price is now the main driver of the dollar, Treasury yields and gold.
What the minutes said
In September the committee voted 12–0 to raise the federal funds target range by a quarter point, to 3.75%–4.00%. The minutes show that agreement on the hike hid a split over what comes next:
For the second meeting in a row, Chair Kevin Warsh reportedly did not submit his own projection for the dot plot. That fits his stated dislike of forward guidance, and it makes the published median a less reliable signal of what the leadership intends.
Why the market isn't buying it (yet)
The minutes describe the economy as it looked in mid-September. Data released since then has been softer:
As a result, futures price only about a 1-in-5 chance of a quarter-point hike on October 28. Earlier in September the odds were well above 50%. The market's reading is that the Fed wants to keep a hike on the table, but the data has not yet given it a reason to deliver one this month.
Where markets stand
What to watch into October 28
The Federal Reserve published the minutes of its September 15–16 meeting on Wednesday, October 7. On paper they read as a clear warning that rates are going higher. The market response was more muted. Traders kept betting that the October 27–28 meeting ends with no change. The gap between what the Fed says and what futures price is now the main driver of the dollar, Treasury yields and gold.
What the minutes said
In September the committee voted 12–0 to raise the federal funds target range by a quarter point, to 3.75%–4.00%. The minutes show that agreement on the hike hid a split over what comes next:
- Most participants thought another increase would likely be appropriate before the end of the year. In the projections, 16 of 18 participants who submitted forecasts pencilled in at least one more hike in 2026.
- Almost all saw the risks to inflation tilted to the upside, and several judged policy to be only mildly restrictive, or not restrictive at all.
- There was no agreed timetable. Some officials framed further tightening as insurance against supply-driven price shocks such as energy. Others pointed to demand that is still stronger than expected.
- A patient camp preferred to wait and see how the hikes already delivered feed through to borrowing and spending.
For the second meeting in a row, Chair Kevin Warsh reportedly did not submit his own projection for the dot plot. That fits his stated dislike of forward guidance, and it makes the published median a less reliable signal of what the leadership intends.
Why the market isn't buying it (yet)
The minutes describe the economy as it looked in mid-September. Data released since then has been softer:
- The August PCE inflation reading cooled to about 3.0% year-over-year.
- September payrolls rose by only around 29,000, and unemployment ticked up to 4.2%.
As a result, futures price only about a 1-in-5 chance of a quarter-point hike on October 28. Earlier in September the odds were well above 50%. The market's reading is that the Fed wants to keep a hike on the table, but the data has not yet given it a reason to deliver one this month.
Where markets stand
- Dollar: The Dollar Index is holding around 102, close to an 18-month high. Rate differentials still favour the greenback, even if October looks like a hold.
- EUR/USD is pinned near 1.12, close to 17-month lows. USD/JPY is chopping around 158, an area where traders stay alert to the risk of Japanese verbal intervention.
- Treasuries: The long end is doing the heavy lifting. The 10-year briefly traded around 5.35% before settling near 5.2%, and the 10s–30s segment is steepening.
- Gold has slipped to two-month lows near $4,000, under pressure from rising real yields.
- Oil remains headline-driven, with Brent back above $100 on Middle East risk. That keeps the "supply-shock insurance" argument alive inside the Fed.
What to watch into October 28
- Fed speakers. Several officials are on the calendar this week. Musalem has already said more firming is needed but did not commit to October. Watch whether anyone from the leadership explicitly opens the door to an October move.
- September CPI and PCE. A hot core print would quickly revive October hike bets and push the dollar back toward its highs. A soft one would cement the hold and shift the debate to December.
- Oil. A sustained energy spike is the clearest route by which the "insurance" camp wins the argument.
- The long end of the curve. If long yields keep rising while hike odds stay low, financial conditions are tightening by themselves. Some officials may decide that this does part of the Fed's job for it.
Bottom line: The minutes tell you the Fed's bias is still to tighten. The futures market tells you the timing depends on the next two inflation prints. Until one side gives way, expect choppy trade in the dollar and front-end rates around each data release.
This article is for information only and is not investment advice.