MediumIV Macro Policy & Sovereign Debt29 September 2026, Tuesday
Markets price 68% odds of October Fed hike before PCE data
Ahead of the PCE data due on 30 September, fed funds futures put the probability of a hike at the 28 October FOMC meeting at 68%. The two-year Treasury yield closed at 4.93% on 29 September, its highest in more than two years.
According to an Investing.com analysis dated 29 September, fed funds futures price a 68% probability of a 25 basis point hike at the FOMC meeting ending on 28 October. The Fed raised rates by 25 basis points on 16 September. The same analysis expects headline PCE inflation for August to hold steady at 3.7% year on year. PCE is the personal consumption expenditures price index, the Fed's preferred gauge. Core PCE is forecast to ease slightly to 3.2% year on year. The analysis singles out rising diesel prices as one of the 2 main drivers of inflation.
IBTimes reported on 24 September that New York Fed President John Williams said one more hike before the end of the year could be appropriate. According to the same report, Fed Governor Michael Barr said further adjustment might be needed because inflation remains above the 2% target. The probability of an October hike on the CME FedWatch tool rose from 55.4% to above 68% within 1 week. The two-year Treasury yield closed at 4.93% on 29 September, its highest level in more than 2 years. Some reports put the probability at 69–70%; the difference may stem from the time of measurement and could not be verified.
Talay assessment
Bottom line
After the Fed's September hike, the market is largely pricing a second step, and the PCE data on 30 September are the first test of that pricing. If headline PCE stays at 3.7%, the probability of an October hike remains high and near-term dollar yields stay under pressure. While energy-driven price pressure persists, it looks difficult for the Fed to signal a pause.
Likely effects
- Global financing conditionsNegativeWeeks
The two-year yield rising to 4.93% supports the dollar and raises the cost of dollar borrowing for emerging economies.
- TürkiyeNegative1–6 months
A further Fed hike narrows the CBRT's room to ease and raises the cost of portfolio inflows to Türkiye.
- US growthNegative6 months+
Two hikes within the year could slow US demand through the housing and credit channels and pull down growth expectations for 2027.
Possibilities, ranked
- 1Hike in October60%
PCE comes in close to or above expectations, and the Fed raises rates by another 25 basis points on 28 October.
Watch: PCE data on 30 September and the October probability on CME FedWatch
- 2Hike slips to December30%
The data come in soft, the Fed waits in October and leaves the hike to its December meeting.
Watch: The employment report in early October and the tone of Fed speakers
- 3Cycle ends10%
Energy prices fall, inflation recedes quickly and the Fed holds rates steady until the end of the year.
Watch: A lasting fall in diesel and Brent prices
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- October hike probability▲ 68%
- US 2-year yield▲ 4.93%
- Expected headline PCE, y/y▲ 3.7%