A Fed rate decision in October that rules out three back-to-back hikes
With forecasts pointing towards a significant rise in US inflation, does this make an October hike any more likely?
Odds have fallen for a no-change in US interest rates in October, with the current expectation of 80% slightly below FedWatch’s rating of nearly 81%. Subsequently, the chances for a triple hike are now up at 13%, up from 11%, with all these changes coming ahead of Wednesday’s US consumer price index data.
Polymarket traders still see a hike, pause, hike at a 61% chance as the scenario most likely to play out between September and December. The hike, pause, pause contract is the second most popular at a 22% chance.
The Federal Reserve does not have a scheduled meeting in November, which makes December the most likely time a hike will be announced, should the high expectations for a no-hike October hold.
This means that a no-hike bet on three consecutive hikes could resolve in just over two weeks' time, when the Fed committee announces its decision on interest rates on October 28. And for $0.87, a 13% return in two weeks could turn out to be a smart play.
Factors that could boost the odds of a triple hike
While all forecasts seem to be pointing towards no change in October, in which case that automatically resolves the triple hike contract to a no, things could still change, raising the chances for a triple hike.
To kick things off, all eyes will be on the US consumer price index on Wednesday. The US Bureau of Labor Statistics is expected to report a 3.6% year-over-year rise in CPI in September, compared to a 3.4% change in August.
The odds for a 3.7% change versus a 3.6% change are neck-and-neck on Polymarket. On Monday, the 3.7% change traded at a 44% chance versus 41% for 3.6%. The latter has since flipped the former, with 45% versus 37%.
This illustrates just how traders are split in opinion with just a day to go until the CPI data for September is released.
A change higher than 3.6% could see more bets going towards a potential October hike, thus improving the chances for a triple hike before the end of the year.
More twists and turns could also come later during the week, when the US Bureau of Labor Statistics releases the producer price index data and the retail sales data for September on Thursday.
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