Another hike is coming

A month ago, the market was pricing roughly 27% odds of another Fed rate move at the October 28 FOMC. Today, that number sits near 70%, which historically has given the Fed confidence the market will not be surprised by the actions (hike in this case) and will not create chaos.

How did we get here: PPI and CPI prints in early September pushed odds toward 50%. The September FOMC meeting itself, where the Fed hiked to a 3.75%-4.00% target, reset the baseline higher. And a string of stronger PMI prints since has done the rest, pushing probability of an October move from the low 50s to the high 70s in under a week.

What does this means for the Treasury curve:

For the short end: This is where the repricing shows up first and hardest. 2-year yields move almost mechanically with Fed-path expectations, so a jump from ~30% to ~75% odds of a hike is a direct, near-full repricing of front-end rates. Expect continued upward pressure here as long as data keeps surprising hot.

For the long end: Less mechanical, more nuanced. If the market reads these hikes as the Fed staying ahead of inflation, long yields may lag — a bear-flattening move, with the curve compressing as front-end catches up to back-end. But if hikes read as reactive rather than proactive, the Fed behind the curve, inflation expectations de-anchoring — the 10-year and 30-year can back up too, driven by rising term premium rather than policy expectations. Given how much attention the long end has already gotten this year on supply and fiscal concerns, that second scenario isn't a low-probability tail. So far, despite the fact that Warsh may have enough credibility, the long end is signaling there is nothing he can do if Hormuz remains closed. The new range is 5-6%.

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