The Federal Open Market Committee opens its two day meeting on Tuesday with the decision itself close to settled in market pricing and the argument pushed into December. The target range stands at 3.75 to 4.00 percent, effective since September 17, and the statement is due Wednesday at 14:00 ET, followed by Chair Kevin Warsh’s press conference.
Pricing favours a hold this week by a wide margin that still leaves a live tail. OIS pricing read on October 27 favours no change with a 12 percent chance of a 25 basis point hike, while prediction market pricing on Polymarket put no change at 93.7 percent and a 25 basis point hike at 6.5 percent. The two instruments measure the same question differently and are reported separately here rather than blended. Both agree on the direction of travel after this week: December is priced as the likelier hiking meeting, at about 75 percent for a 25 basis point move on Polymarket, with roughly 67 basis points of hikes priced over the next 12 months on the OIS read.
The curve goes into the meeting having rallied on the week even as the front end cheapened on the day. The site market tables updated October 27 at 06:00 ET put the 10 year Treasury at 4.99 percent, down 0.2 basis points on the day and 15 basis points on the week, the 30 year at 5.30 percent, down 1.4 basis points on the day and 17.1 on the week, and the 5 year at 4.82 percent, up 1.9 basis points on the day and down 10.5 on the week. Long yields below their recent highs with a hike still priced for December is a market that believes the tightening path is real but not disorderly.
The case the committee is weighing is the one this site’s commodity coverage keeps supplying: energy led inflation. Brent crude fell 4.21 percent to 110.93 dollars in the latest tables, but it remains up on the week and far above pre war levels, and European gas sits at a four year high into winter. A hold with hawkish language, the outcome economists quoted in pre meeting surveys call a hawkish hold, would keep December live without conceding that October’s data forced the committee’s hand.