Into the Blackout: October Hold Priced ~83-92% but the Hike Case Is Alive — BofA Sticks With October (Core PCE to 3.4% by Year-End), Oxford Says 'October Is a Live Meeting,' Harris Calls It 50-50
Update (Oct 17-23, the quiet week before the Oct 27-28 FOMC): The Fed entered its blackout (began Oct 17) with markets heavily favoring a hold — futures assigned only a 17% probability to an October hike (MarketWatch), with December-hike pricing holding at ~75-90%. But the economist consensus is less one-sided than last cycle's 94/100 skip-October Reuters poll suggested:
- Bank of America (Oct 20 note) kept its October hike forecast despite ~20% market odds: the inflation picture "has deteriorated since the September meeting," core PCE "could plausibly finish the year at 3.4% y/y" (vs 3.0% in August after the BEA revision), and since "most of the FOMC supported two rate hikes this year," it questioned "why the committee would forgo the second increase in October while preserving the option for a third in December." It concluded the call "depends on the character of Chair Walsh [Warsh]."
- Oxford Economics (Matthew Martin, to MarketWatch): "I think October is a live meeting. We think the Fed will raise rates in October and December."
- Ethan Harris (former BofA Securities chief economist): "I think it's a 50-50 call."
- Patrick Harker (ex-Philadelphia Fed president) laid out the fast-then-pause case on CNBC: current rates of 3.75-4.00% "don't seem to be accomplishing that" — downward pressure on the economy — and moving quickly would buffer the Fed's inflation-fighter credibility.
- The hold case: hiking six days before the Nov 3 midterms "risk[s] looking political"1; BofA's Aditya Bhave writes a pause buys assessment time but "risks falling behind the curve given the booming U.S. economy"; Stifel's Lindsey Piegza warns an October hike would signal "an elevated level of concern" and hand the market an opening to push rates higher.
Warsh's own last word before the blackout (Bangkok, IMF/World Bank meetings): "I don't believe in saying now what I might do at the meetings that we have in the balance of this year."
What it means
The skip-October/hike-December base case survived the hot CPI/PPI prints (September CPI: Headline Jumps to 3.7% y/y on a 9.1% Gasoline Spike — Core Picks Up to 2.6% as Pressure Broadens Past Energy, and Real Wages Fall for a Second Straight Month, September PPI Shatters Forecasts: +1.3% m/m Is the Biggest Monthly Jump Since March 2022, +6.3% y/y the Largest Since December 2022 — Core Hits 5.0%) and the booming PMIs (October Flash PMIs: Q4 Opens With a Boom — Composite 57.6, Output Prices Highest Since August 2022 (59.8), Delivery Times at a 4-Year Low) — but as a judgment call, not a consensus. The decisive data lands after the meeting: Q3 GDP (Oct 29) and September PCE (Oct 30) will decide whether December is a certainty, and BofA's 3.4% year-end core-PCE call is the number to test that against (Sept 30 Verdict: BEA Revision Cuts Core PCE to 3.0% (–36bp, More Than Expected) — October Hike Odds Collapse to ~37%, Q2 GDP Revised Up to 2.2%). The political-timing argument cuts both ways: holding now looks prudent, but a December hike lands a month after the midterms with no electoral excuse left.
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An instance of The midterm calendar now schedules wars and rate hikes alike. — The hold case is openly argued on electoral timing, showing the rate path now bends to the midterm calendar rather than the data. ↩︎