Analysis: Everyone expects the Fed to hold rates in October. Kevin Warsh could surprise us all

CNBC reports that futures markets were assigning about a 15% probability to an October rate hike ahead of the Fed’s late-month meeting, a backdrop reinforced by remarks from other Fed officials that sounded comfortable with holding rates steady.

The article’s focus is the risk that the market may be anchoring too heavily on past communication conventions. It notes that Fed Chair Kevin Warsh said outright at an IMF event in Bangkok that he was not signaling a decision one way or the other, while simultaneously having “left room” for a hike if he chose to use it. CNBC contrasts Warsh’s approach with the expectation that top lieutenants effectively speak for the chair.

CNBC also links the policy debate to the macro data context, arguing investors appear to be underweighting an inflation-based case for an increase given “elevated inflation” and relatively “loose financial conditions.” It points to recent hot PPI and CPI readings discussed elsewhere in its coverage, and cites recent Fed speeches by Vice Chairman Philip Jefferson and New York Fed President John Williams as having contributed to the repricing toward a hold.

What to watch next is whether Warsh’s communication style reduces the guidance markets use to translate speeches into rate-path probabilities, and whether additional inflation and financial-conditions information changes the implicit odds embedded in futures.