Bets on an October Fed hike collapse to 14% as gold and the dollar both end the week lower

The chances of the Federal Reserve raising its key rate this month fell from 47% to 14% over the week, Interactive Brokers reported, as investors weighed hotter-than-anticipated consumer and producer inflation reports against turbulence on Wall Street driven by AI concerns and neutral commentary from Fed Chair Kevin Warsh⁴. The New York Post reported traders betting on an October hold after Warsh stayed tight-lipped at the conference despite the week’s hot inflation data⁹.

The repricing showed up across assets. Bloomberg reported that the dollar had its worst week in a month, its monthlong rally running out of steam after Warsh’s remarks failed to give the currency a lift³. Gold was set for a weekly drop as traders assessed Fed signals, Reuters reported¹, even as futures settled higher on the day while US yields and the dollar fell². The Economic Times reported that ten-year Treasury yields suffered their biggest weekly drop in over a year⁸.

Why it matters to investors

The striking part is what the inflation data did not do. MarketWatch argued that the bond market shrugged off two inflation shocks and that stock investors should pay attention¹⁰. Yields fell in the same week that producer and consumer prices came in hot^4,8, which is the opposite of a market pricing a central bank that is behind the curve.

Officials have not endorsed the calm. Chicago Fed President Austan Goolsbee called the week’s stronger-than-expected inflation data “discouraging”^6,7. Reuters reported that traders largely expect the US central bank to hold rates steady this month¹. Kitco quoted Bart Melek, global head of commodity strategy at TD, on the uncertainty over what the Fed will do⁵. For gold, central bank purchases cushion the downside, but the week’s higher-than-expected inflation readings cut the other way².

What to watch

Watch whether the hike odds stay near the low end or snap back, since they moved by more than thirty points in five days and were described as highly volatile throughout⁴. Watch the dollar, where a second weak week would mark the end of the rally rather than a pause³. And watch long duration, which MarketWatch pointed to as the expression of the bond market’s view through long-dated Treasury exposure^8,10.