Interest Rate Signals and Market Expectations from Fed Officials

While Fed President Kevin Warsh stated that he would avoid giving clear signals to investors regarding the future course of interest rates, Vice President Philip Jefferson and New York Fed President John Williams took a similar approach this week.

Jefferson and Williams said the Fed has time to evaluate the economy before a new interest rate hike. The statements led investors to significantly lower their expectations for an interest rate increase this month.

Officials' statements do not mean that the Fed will not increase interest rates further. While warnings continue that inflation is still high, consumer prices data to be announced on October 14 may be decisive in policy discussions.

After the Fed's interest rate increase on September 16, investors were pricing the probability of a new increase at the October 27-28 meeting as 70%.

After Jefferson's speech on Thursday, this rate decreased to approximately 25%, with the effect of inflation data below expectations announced in the interim.