The hold outcome rose to 36% as New York Fed President John Williams said another increase "may be appropriate late this year," a timing the October contract does not pay on.
The bet on an October rate increase got a little less crowded on Tuesday.
On Kalshi, the contract for a quarter-point increase at the Fed's Oct. 27-28 meeting traded at 64% in the afternoon, down from 68% early in the day. The price of no change rose to 36% from 30%. On Monday afternoon, the hike contract had traded near 67%.
Two officials, two tones
The day's Fed commentary did not point in one direction.
John Williams, president of the New York Fed, said in Buffalo that the central bank could wait. "With the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information," he said. He did not rule out another move: "One further upward adjustment of the federal funds target range may be appropriate late this year to support a timelier return of inflation to target."
Fed Governor Michael Barr sounded more certain that more is needed. "In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion," he said, adding that he sees the risks to inflation as higher than the risks to the labor market.
St. Louis Fed President Alberto Musalem, speaking on communications policy, warned that "the prospect of the Fed pulling too far back on communications poses volatility risk."
The timing question
Williams' phrase "late this year" matters for this contract. An increase at a meeting after October would satisfy his description and still resolve the October contract as no change. The rise in the hold outcome is consistent with some traders moving their expected timing rather than dropping the expectation of another hike.
The day's data added to the softer tone. The Conference Board's consumer confidence index fell 6.7 points to 81.9, well below forecasts, and job openings fell to a five-month low. The two-year Treasury yield, the maturity most sensitive to Fed expectations, fell about 3.5 basis points to near 4.89%.
Bond investors have been more hawkish than the Fed's own projections. "It shows that the market is certainly more hawkish than the Fed," said Evangelos Assimakos, investment director at Rathbones. "The Fed was quite sanguine. 12 members out of the 18 were opting for just one rate hike this side of Christmas, whereas the market is certainly looking for a couple."
Coming up
Wednesday's August PCE inflation report is the most direct input before the meeting, and Friday's payrolls follow. A firm core reading would test whether the hike contract can climb back toward 70%. A soft one would show whether traders keep shifting their bets past October. The Kalshi price of the hold outcome is the measure of that shift.