Market expectations for an imminent Federal Reserve interest-rate increase have weakened sharply after New York Fed President John Williams signaled policymakers have no urgent need to move again in October. Williams said the Fed has sufficient time to evaluate new economic data following its September meeting, although he stressed that inflation remains elevated and another hike later in the year may still be appropriate.
According to CME Group data, the implied probability of a rate hike at the October 28 meeting dropped from roughly 70% before Williams’ remarks to about 50%. The shift reinforced the view that the central bank may wait until December for its next policy step, especially after previously hawkish messages from Fed Chair Kevin Warsh had lifted expectations for an October increase.
Goldman Sachs also updated its forecast, moving its call for the next rate hike from October to December. The bank cited weaker-than-expected US inflation data, with the core PCE price index for August slowing to 3.0% year-on-year versus a 3.3% consensus estimate. Headline PCE inflation came in at 3.4%, below the 3.7% expected. On a monthly basis, PCE rose 0.3% and core PCE increased 0.2%.
At the same time, consumer demand remained strong: inflation-adjusted consumer spending rose 0.6% in August, the strongest monthly gain since March 2025, while second-quarter US GDP growth was revised up from 1.5% to 2.2%. Goldman Sachs expects core PCE inflation to be around 3.0% year-on-year in the fourth quarter, compared with the Fed officials’ median estimate of 3.4%. The bank also said the data strengthens the possibility that the Fed may not need any further hikes for the remainder of the year. Market participants currently price about a 65% probability that the Fed leaves rates unchanged in October, with a roughly 31% chance of a 25-basis-point hike.
