Fed Rate Hike Odds for October Plunge as Markets Eye December

A sharp reversal in rate expectations

Traders who were bracing for a second consecutive Federal Reserve rate increase this month have largely changed their minds. On September 28, futures markets put the chance of a hike at the October 27-28 meeting at about 71%. That figure has since fallen to roughly 20%. 2 A separate snapshot dated October 9 puts October hike odds even lower, at about 16%-18%. 1

The change is not a bet that the tightening cycle is over. The same October 9 data shows markets still assign about a 75%-85% probability to a hike by December. 1 The debate has shifted from whether the Fed raises rates again this year to when it does so. Among 14 brokerages surveyed, only Bank of America expects a move in October. 1

How the Fed got here

On September 16, the Fed raised the federal funds rate by 25 basis points to a 3.75%-4.00% target range. 3 It was the central bank's first increase since 2023. 4 The decision ended a long pause. After a quarter-point cut in December 2025 took the range to 3.50%-3.75%, the Fed held steady at every meeting through July 2026. 1 The July hold, however, came with three dissents from members who wanted to hike. 1

The September move came with hawkish signals. The updated dot plot and upgraded economic projections pointed to at least one more increase before year-end, driven by persistent inflation and a strong labor market. 3 The median first-year rate projection rose to 4.1% from 3.6%, and the second-year projection climbed to 3.9% from 3.4%. 4 Minutes from the September 15-16 meeting showed unanimous support for the hike. Most policymakers judged that another increase would likely be appropriate by year-end. 4 The minutes also stressed that each meeting would be approached with an open mind and that decisions would depend on incoming data. 4

Reading the swing in the odds

Market pricing has moved in three stages:

• Right after the September decision: CME FedWatch showed an almost even split for October, about 50.9% for a hike versus 49.1% for a hold. 3
• By late September: odds of an October hike had climbed to 71%. 2
• Early October: odds dropped to the 16%-20% range. 12

This looks less like a change in the Fed's direction than a recalibration of its pace. One account attributes the drop to the Fed voicing a more gradual, dovish approach to hiking. 2 That fits the minutes' emphasis on data dependence, which gives officials room to wait. Analysts expect a quarter-end rate of 4.25%, which implies one more hike in the fourth quarter without fixing its timing. 4

Why pace matters for stocks

The shift is good news for equities, according to one analysis. 2 It cites Charles Schwab research covering rate hikes back to 1946. That study found that when the Fed tightens quickly, stocks are down an average of 16.5% twelve months after the first hike. 2 A slower cycle tends to give earnings and valuations more time to adjust.

The September hike showed how sensitive markets are to these signals. After the announcement, Treasury yields and the dollar jumped, pressuring equities, gold and housing. 3 As an analytical point, high-valuation growth sectors such as semiconductors, and speculative assets like bitcoin, have historically been especially sensitive to moves in yields and the dollar. A softer path to the next hike could ease some of that pressure. A hot data surprise could just as easily bring it back.

The calendar ahead

Several events before the October 28 decision could move the odds again:

• October 14: September CPI, the key data point before the meeting 1, and the Fed's Beige Book. 4
• October 16: a scheduled speech by Fed Chair Kevin Warsh. 4
• October 28: the rate decision at 14:00 ET, followed by a press conference at 14:30 ET. 1

The bottom line

The sources agree on the direction of the shift but differ slightly on its size. Fed communications have stayed consistent: one more hike is likely, and its timing depends on the data. That makes the collapse in October odds look like a market correction of an earlier overreaction, not a dovish pivot.

The late-September spike to 71% appears to have overstated the Fed's urgency. The current pricing, a likely hold in October and a probable hike in December, matches the minutes more closely. The main risk is the CPI report. A strong inflation reading could revive October bets quickly, so the recent calm in rate-sensitive assets depends on that one release.