Traders now expect the Fed to hold rates in October

The no-change contract jumped 24 points in a day, even as Wednesday's inflation report may lift hike bets.

In one line: The Fed leaves its rate range unchanged at the October meeting and saves its rise for December. The 56% no-change price underrates that.

Investing.com reported on 29 Sep that Wednesday's personal consumption expenditures (PCE) inflation report may boost bets on a Fed rate rise. The same day Hindustan Times put the 30-year mortgage rate at 7.373%, and Metaverse Post described the Fed as hawkish. Polymarket traders moved the other way and made no change the favoured outcome for October.

The no-change contract trades at 56%. It is up 24 points in the last 24 hours and 10 points over seven days, from 46% on 23 Sep. The path swung hard. It fell to a seven-day low of 28% on 28 Sep, then rose 28 points from there. In the same event, a rise of 25 basis points (a quarter of a percentage point) is priced at 44%, a rise of 50 or more at 1%, and either cut at 0%. Traders see a hold or a quarter-point rise, and nothing else.

The December contracts show where the argument lies. They price a quarter-point rise at that meeting at 75% and no change at 22%. Traders expect the Fed to raise rates this year; they split only on whether October or December brings it. The December book prices a rise at that meeting far more firmly than the October book does, so it points to a later move. The Investing.com piece does not undercut this. It says a print may lift hike bets, and the print has not yet landed.

The Fed holds at its October meeting and makes its first rise in December, and the 56% no-change price underrates that. The hike camp's best case is a PCE print hotter than forecast on Wednesday. That case would be right if traders then pulled the rise forward and took the no-change contract back below its 28% low of 28 Sep. The call is proven wrong if the committee raises the upper bound of its range at the October meeting, which the contract settles on 29 Oct. A hold gives borrowers already facing a 7.373% 30-year mortgage rate a reprieve until the December meeting, where the book prices a rise.

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