Following an unexpected rise in inflation, the S&P 500 fell 1.1% in a single day, ending a 53-trading-day streak of calm in U.S. equities. Waugh will speak publicly before the Fed enters its blackout period, and markets are awaiting his guidance on how the Fed will balance inflation risks against gradual rate hikes.
The September inflation data shattered market expectations that the Fed could afford to wait. Over the past several weeks, several policymakers had suggested the Fed did not need to rush into another rate hike, but the latest data has once again made the October meeting a potential turning point for action.
Former Federal Reserve Governor Kevin Warsh previously pledged not to guide markets through short-term monetary policy outlooks. However, following an unexpected rise in inflation, market attention has turned sharply to his speech in Bangkok on Thursday evening Eastern Time (11:30 Beijing time on the 16th), where he will engage in a fireside chat with IMF Managing Director Kristalina Georgieva.
The Federal Reserve will enter a media blackout on Saturday in preparation for its policy meeting on October 27–28. Prior to this, if the Fed wishes to signal its stance on interest rate decisions, Walsh’s remarks will serve as an important channel.
Bank of America U.S. interest rate strategist Meghan Swiber said investors are “waiting for Walsh to bless the Fed’s future path of rate hikes tomorrow.” Regarding the latest inflation data, she noted: “This was broad-based strength, and the Fed will find it harder to ignore.”
The September Consumer Price Index (CPI), released on Wednesday, showed widespread increases in prices for goods and services. Just one day earlier, John Williams, President of the New York Fed, had expressed optimism about inflation prospects, helping to lower U.S. Treasury yields.
Specifically, airfare, used cars, and healthcare prices all rose month-over-month, and energy costs surged significantly. Prices for computers and software posted the largest year-over-year increase on record, while toy prices saw the biggest annual increase since 1988.
After the data release, traders quickly adjusted their bets on Fed policy. According to futures market data, the probability of an October rate hike rose from around 20% before the release to as high as 55%, before settling back to around 40%. Although the risk of a rate hike has clearly increased, most Fed observers still expect the Fed to hold rates steady this month and delay the next hike until December.
Analyst Colby Smith said that, following the release of this inflation report, Powell will face pressure to explain why the Federal Reserve continues with a gradual approach to rate hikes despite rising price pressures.
Ed Harrison, Macro Strategist at Markets Live, noted that the market's hawkish reassessment of the Fed's outlook could further push up short-end interest rates and drive the yield curve into a bearish flattening trend. With overall inflation rising 3.7% year-over-year, the risk of continued upward pressure on long-term inflation expectations is also worth monitoring.
In fact, prior to the September CPI release, several senior officials, including Vice Chair Philip Jefferson, Governor Christopher Waller, and Williams, indicated that the central bank did not need to rush into another rate hike. After raising rates for the first time since 2023 at the September meeting, policymakers still wished to allow time to observe the impact of their policy.
The timing of policy also added complexity to this month’s actions. A week after the Federal Reserve’s October meeting, the U.S. will hold its midterm elections, which is one reason some observers expect the central bank to hold steady.
Analysts also warned against overreacting to any single economic data point. Mortgage rates continue to rise, keeping the housing market under pressure; delaying the next rate hike until December would give the Fed more time to observe price trends and assess whether the latest inflationary pressures are persistent.
Guy LeBas, Chief Fixed Income Strategist at Janney Montgomery Scott, said: "Many categories are warm, but there is no clear evidence of acceleration." He believes that more compelling data would be needed to convince many cautious members of the FOMC to support an interest rate hike this month.
Nevertheless, the September inflation report has significantly shifted market positioning for the October meeting, transforming it from a gathering previously seen as unlikely to raise rates into one with substantial policy uncertainty. The report also showed that core inflation exceeded expectations for the second consecutive month.
Joseph Brusuelas, Chief Economist at RSM US LLP, said that the dovish members of the committee felt like they had "drunk a cold cup of coffee" upon seeing the September CPI data.
He added, "The depth and breadth of the triple supply shock are clearly at work in the U.S. economy."
Hit by inflation data and growing concerns over the sustainability of AI-driven trading, the S&P 500 fell 1.1% on Wednesday, ending a record 53 consecutive trading days without a single-day decline of 1%—the longest period of calm for the index since January 2020. Weakness in large-cap tech stocks further undermined the momentum that had previously fueled the prolonged rally in U.S. equities. Since the end of March, the S&P 500’s market capitalization has increased by approximately $13 trillion; Wednesday’s pullback has begun to raise investor concerns that this rally may face even greater challenges.