Fed's Barr Signals Further Tightening; October Rate Hike Odds Rise to 70%

Federal Reserve Governor Michael Barr said the central bank may need to adjust policy further to bring inflation back to target, pushing market-implied odds of a quarter-point hike at the Oct. 27-28 meeting to roughly 70% as of Sept. 23, according to CME FedWatch. The repricing followed S&P Global flash data showing U.S. services PMI rose to 58.7, a 59-month high, and manufacturing PMI climbed to 56.7, a 53-month high, with the composite at 58.4, a 62-month peak. Input prices rose at the fastest pace since October 2022 on fuel, transport and wage costs, while employment growth hit its quickest since June 2022. The 10-year Treasury yield touched 5.129%, its highest since July 2007, before easing to about 4.53% in Asian trading Thursday. The policy-sensitive 2-year yield climbed more than 13 basis points to near 4.9%. The Fed last week raised the benchmark rate to a 3.75%-4% target range. Of 18 officials submitting projections, only two expect no further increases this year.