Fed, ECB Minutes to Show September Hike Resolve as October Rate Urgency Fades

Q: With Fed Chair Warsh warning of persistent inflation, could the central bank shock markets with another hike despite cooling economic data?

Yes, but an October surprise looks unlikely; December is the more plausible window. Warsh has clearly kept the door open. He said recent inflation readings do not show “meaningful” improvement and warned that broad price pressures remain too high. The Fed’s September hike to 3.75%-4.00%, along with projections showing inflation still above target through 2028, underlines that policymakers are still more worried about sticky inflation than a sharp downturn. But the market case for another immediate move has weakened materially. September payrolls rose by only 29,000, unemployment edged up to 4.2%, and core PCE inflation for August came in cooler than expected at 3.0%. That has pushed down pricing for an October hike: CME FedWatch shows about a 17% chance, and Kalshi is near 18%. New York Fed President John Williams also said there is “no need for urgency” after the September increase. The likely message from the upcoming Fed minutes is that officials still see upside inflation risks from energy, tariffs, geopolitics and AI-related demand, but they also want more evidence before tightening again. July minutes already showed three officials favored a hike then, suggesting a hawkish minority remains active. So the real risk is not that the Fed shocks markets in October, but that it preserves a hawkish bias and hikes later if inflation stalls. Investors appear to be shifting that risk into December, where market-implied odds remain much higher.

3 articles · Updated · Bloomberg · Oct 5

Minutes due in the coming days are expected to show Federal Reserve and European Central Bank officials still focused on inflation even after both raised benchmark rates in September.
October hike expectations have eased as soft US jobs data and acute stress in French financial markets undercut the case for immediate follow-up tightening.
That leaves the minutes likely to capture a tougher policy stance than markets now expect, highlighting a gap between last month’s inflation concerns and this month’s more cautious outlook.