Wednesday's unexpectedly hot inflation report raised the stakes for Federal Reserve Chairman Kevin Warsh's upcoming appearance at the International Monetary Fund's meetings in Bangkok, the last scheduled remarks by a Fed official before policymakers go quiet ahead of their Oct. 27-28 meeting.
Probabilities of an October rate increase in futures markets jumped to around 50% after the report showed a firmer-than-expected reading for underlying inflation. Those probabilities eased to less than 40% later Wednesday, according to CME Group.
Wednesday's moves partly reversed the drop that followed speeches two weeks ago by New York Fed President John Williams and Vice Chair Philip Jefferson, which helped cut those odds from about 70% to around 25%.
Warsh, who is scheduled to speak with IMF Managing Director Kristalina Georgieva at 11:30 p.m. Eastern time on Thursday, has said he wants to move the central bank away from the verbal signaling Fed chairs have used in the past to avoid surprises at Fed meetings. But anything he says about the outlook will be read either as ratifying expectations of an October hold or as resetting them by leaning toward an increase.
With the October meeting now seen as a closer call, saying nothing could send investors into the Fed's quiet period divided over a meeting that is less than a week before the midterm elections, leaving many surprised by whatever officials decide. That is the situation the speeches by Williams and Jefferson appeared aimed at avoiding.
Even if officials hold steady in October, as their previous communications had suggested was more likely than not, the report shifts the debate from when the Fed raises rates to how high it goes. Evidence that inflation pressures are stickier and more broad-based than expected makes it more likely that the Fed continues raising rates in 2027, beyond a widely anticipated December increase.
If October price readings, due next month, show stiffer pressures and the Fed holds steady this month, officials could face questions over whether to raise rates by a quarter point or a half point at the Dec. 8-9 gathering.
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