MediumIV Macro Policy & Sovereign Debt24 September 2026, Thursday
Philadelphia Fed President Paulson says modest further tightening may be needed; October hike odds at 64%, jobless claims fall to 197,000
Philadelphia Fed President Paulson, a voter this year, said on 24 September that core inflation remains stubborn in the 2.5–3% range and that modest further tightening may be needed. The market puts the odds of an October hike at 64%, while weekly jobless claims fell to 197,000.
According to a report published in the Spokesman-Review, in remarks prepared for an event in Philadelphia on Thursday 24 September Paulson said that inflation measures excluding energy and food remain in the 2.5–3% range and show no sign of approaching the 2% target. Recalling that a week earlier the Fed had unanimously raised its policy rate for the first time since 2023, to a 3.75–4% range, Paulson said price pressures stem from the Middle East conflict and AI data centre investment, while the impact of tariffs on consumer prices has diminished. According to the report, a majority of officials project one more quarter-point hike this year, and 8 officials expect a similar step in 2027 as well.
According to a 24 September Briefs report, investors on the CME FedWatch tool put the odds of an October hike at 64% and expect another hike in January; futures imply the policy rate reaching around 4.8% by end-2027, or roughly 4 quarter-point hikes. According to the same report, longer-dated Treasury yields have risen to levels not seen since 2004. According to Trading Economics data, initial jobless claims in the week of 19 September fell from 198,000 to 197,000, below the expected 201,000, and the 4-week average was 202,250.
Talay assessment
Bottom line
A voting president signalling further tightening 8 days after the September hike strengthens expectations that the Fed will not stop at a single hike. With core inflation stuck at 2.5–3% and jobless claims at 197,000 pointing to a tight labour market, a second hike in October appears the most likely path; the market prices it at 64%.
Likely effects
- US yieldsNegative1–6 months
The implied policy rate of around 4.8% for end-2027 is keeping extended-maturity Treasury yields at levels not seen since 2004.
- DollarUncertainWeeks
A market pricing Fed hikes in October and January creates a floor supporting the dollar through the rate differential.
- Türkiye's external financingNegative1–6 months
The prospect of up to 4 further quarter-point Fed hikes could raise Türkiye's dollar-denominated borrowing costs and pressure on the lira.
Possibilities, ranked
- 125 basis point hike in October60%
September data show no improvement in core inflation and the Fed raises rates to a 4–4.25% range.
Watch: Core inflation in August PCE data
- 2Hold in October, hike in December30%
Inflation data soften or market volatility rises, and the Fed waits one meeting.
Watch: September employment report and consumer inflation expectations
- 3Tightening stops10%
A sharp fall in energy prices and weakening employment remove the need for further hikes.
Watch: Brent falling below 90 dollars and a rise in jobless claims
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▲ 64%
- Implied rate at end-2027▲ ~4.8%
- Initial jobless claims▼ 197,000 (−1,000)