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👇🔲 Gold Financial | Fed rate hike odds surge 1️⃣ US September CPI came in above expectations, reviving inflation pressure 2️⃣ CME shows the probability of a Fed rate hike in October jumped from 22% the previous day to 50% 3️⃣ Traders expect at least one rate hike before year-end, and three more cumulative hikes by the end of 2027 4️⃣ As rate hike expectations build, risk assets come under pressure, and the crypto market needs to watch for short-term pullback risk⚠️

The market isn’t even bothering to bet on the Fed’s October meeting. CME, Kalshi, and Polymarket now put the odds of “no move in October” at around 80%. In September, it stayed close to 50-50 until the final week. The current market view is that October is basically priced in, and BTC has been rangebound since late September. The problem is that a pause doesn’t mean the end. A December hike is still possible, and long-end U.S. Treasury yields are at multi-decade highs. If tonight’s CPI comes in a bit hotter, can that 80% still hold? 🫣

U.S. inflation persistence remains central to the debate over the Fed's rate path. In September, headline CPI was 3.4% year over year, well above the Fed's 2% target. Core inflation was milder at 2.4%, but still above target. This suggests that while inflation is slowing, it has not yet fallen to the desired level. The Fed's September meeting minutes offered important clues on the direction of monetary policy. All 19 officials supported a 25 basis point hike, raising the policy rate to the 3.75%–4.00% range. The minutes showed that most participants judged that one more hike before year-end could be "appropriate." That wording suggests the Fed is committed to fighting inflation but will not rush to act. The minutes also noted that inflation risks are tilted to the upside, while labor market risks are broadly balanced. Market reaction also reflected the Fed's cautious stance. According to CME FedWatch data, the probability of keeping rates unchanged in October was 82.3%, with a 17.7% chance of a hike. By contrast, the probability of a hike at the December meeting was notably higher at 70.5%. This gap suggests the market expects a pause in October but sees a year-end hike as still possible. Recent comments from Fed officials also support this outlook. Fed Governor Christopher Waller said further hikes may be necessary to bring inflation back to the 2% target. However, Waller noted that the pace of hikes is "flexible" and left room for a pause at the October meeting. Meanwhile, New York Fed President John Williams said there is no "urgency" to change the current monetary policy stance. These comments suggest the Fed is taking a data-driven approach and keeping all policy options open. The resilience of the U.S. economy is another key part of the equation. In the first half of the year, GDP grew 2.4%, indicating growth close to potential. September nonfarm payrolls rose by 29,000, below expectations, while the unemployment rate rose to 4.2%. While this suggests the labor market is cooling, it also shows layoffs remain contained and the economy is not contracting. Fed Vice Chair Jefferson emphasized that the economy will remain "resilient," but inflation is still "too high." The September CPI data due next week will be the most critical data point shaping this outlook. The market expects headline inflation to rise to the 3.6%–3.7% range on an annual basis. This increase is mainly expected to come from higher energy prices. At the same time, core inflation is expected to remain flat at about 2.4%. Core inflation will be the key data point that could shift the probabilities around the Fed's rate decision. In short, U.S. inflation remains sticky, and uncertainty over the Fed's rate path persists. The market expects a pause in October but has priced in a significant chance of a December hike. Inflation data, economic growth, and labor market indicators will continue to be the deciding factors in this equation. The Fed's next move will depend on how these data evolve and whether inflation is moving toward target. This article does not constitute investment advice.

In September, rates were cut by 25bp to 4.00%-4.25%, and CME data shows the probability of another 25bp cut in October is as high as 94.6%. So the real question is: could a CPI upside surprise make the Fed pause in October? I think it would significantly lower the probability of a cut, but not enough to fully reverse it. The September minutes revealed a key divide: of the 19 officials, slightly more than half expected at least two more cuts this year, but several thought there would be only one or none. The minutes also clearly showed that most officials emphasized "upside risks to the inflation outlook," and some believed "monetary policy may not be particularly restrictive." This means that if CPI comes in above expectations, the hawkish camp will immediately gain more influence, and October cut pricing could quickly fall back from 94%. On the other hand, weak signals in the labor market are the core basis for the current cuts — at the September meeting, officials "broadly agreed that the importance of slowing employment growth outweighed concerns about persistently high inflation." As long as employment does not strengthen, a single month of upside CPI will most likely only slow the pace of cuts, not shift toward rate hikes. #WeeklyCheckIn #FedSeptemberMinutesHawkish

The September Fed meeting minutes reshaped market expectations for the rate path. At the September 15-16 meeting, the decision to raise rates by 25 basis points was unanimously supported by 19 officials, bringing the federal funds rate to a range of 3.75-4.00%. The minutes showed that the vast majority of participants believed another rate hike before year-end "could be appropriate." However, the minutes immediately emphasized "data dependence" and gave no clear guidance for the October meeting, leading the market to read it as "hawkish but in no rush to act." This interpretation was reflected in the interest rate futures market. According to CME FedWatch data, the probability of a rate hike at the October 27-28 meeting was priced at 17.2%, down sharply from 51% a week earlier. By contrast, the market still priced the probability of a December rate hike at a high 70.5%. In other words, the market believes the Fed may act again this year, but is not sure that action should come in October. The main reason behind this is that recent employment data shows the labor market is slowing. September nonfarm payrolls rose by only 29,000, and the unemployment rate rose to 4.2%, prompting the Fed to reassess the balance between "fighting inflation" and "protecting employment." The minutes also showed that risks to the labor market were broadly balanced and employment conditions had strengthened somewhat. This supports the view that the Fed has no reason to rush in October. Now let's turn to the core question: how might the September CPI data due on October 14 change this picture? The market expects a monthly increase of 0.4% and an annual increase of 3.4%. If the data comes in above expectations, it would suggest inflation is not slowing, and the probability of an October rate hike could rise again. In particular, if the results show that high energy prices are spreading into core inflation, it could reinforce the Fed's message of "higher rates for longer." Conversely, data in line with or below expectations would confirm current market pricing for rates to remain unchanged in October and shift focus to December. So how might these expectations affect crypto and US stocks? Lower expectations for rate hikes are generally seen as supportive for risk assets. In fact, after the September rate hike, crypto funds saw a record single-week inflow of $3.55 billion. This shows that rate decisions directly affect capital flows. However, this relationship is not one-way. Higher rate expectations can pressure stocks, especially those whose valuations are tied to future earnings. For crypto, a stronger dollar and tighter financial conditions can reduce risk appetite; however, it is important to remember that Bitcoin and Ethereum do not always move in sync with stocks. Therefore, the impact of changing rate expectations may depend on the asset class and what the market is currently pricing. Now to the third question: is the current outlook already priced in? Partly, but not entirely. The expectation of no hike in October appears to be mostly priced in; the drop in hike probability below 20% confirms this. For December, the market still strongly prices a hike, so that scenario is also mostly priced in. However, the October 14 CPI data could confirm or break this pricing. The market's actual reaction will depend on how far the data deviates from expectations. If the data is close to expectations, current pricing may remain largely unchanged. However, a major surprise could reshape rate expectations and the pricing of risk assets. In summary, although the September Fed meeting minutes had a hawkish tone, the market-implied probability of an October rate hike is at a low level. The CPI data due on October 14 is the most important data point and could partially ease this uncertainty. If the data clearly shows the direction of inflation, it could influence the Fed's policy path and the direction of crypto and stock markets. For now, market pricing reflects a pause in October and a possible hike around year-end; however, this outlook could change based on future data. This article does not constitute investment advice. The analysis is based on publicly available information and does not guarantee future results. #ShareWeekly #FedSeptemberMinutesLeanHawkishs