Warsh goes quiet before the blackout — and October-hike odds get cut in half

What happened#

Fed Chair Kevin Warsh had one last chance to shape expectations before the blackout — a fireside chat with IMF Managing Director Kristalina Georgieva at the IMF-World Bank annual meetings in Bangkok — and he chose silence. "I don't prejudge meetings. I don't believe in saying now what I might do at the meetings that we have in the balance of this year," he said, per Reuters. When Georgieva joked that he had disappointed half the audience, Warsh replied: "It's a new chapter at the Fed. We're not in that business anymore."

Markets read the silence as dovish. October-hike odds were cut roughly in half, to about 13–15% from ~26–30% on CME FedWatch. Most traders now bet the committee holds the 3.75%–4% range steady on October 28 and delivers the next quarter-point hike in December.

The data pushed back#

Friday morning's prints told a hotter story:

Print	Actual	Expected
Import prices (m/m)	+1.1%	+0.8%
Import prices (y/y)	8.1% — biggest since July 2022	—
Industrial production (m/m)	+0.7%	+0.4%
Capacity utilization	76.9%	76.5%

Industrial production has now risen six straight months, up 2.2% year-on-year — the fastest pace in about four years. Manufacturing output rebounded 0.3%, led by semiconductors. And the inflation backdrop is unforgiving: September CPI ran 3.7%, PPI 6.3% y/y — both well above the Fed's 2% target.

The tension#

This is the whole October debate in one morning: a Chair who refuses to signal (dovish read) against trade prices running at multi-year highs and factories humming (hawkish read). The September minutes showed a majority of officials still expect one more hike this year — but New York Fed President Williams and Vice Chair Jefferson have both said there's no urgency for a back-to-back move.

The blackout starts Saturday, so there will be no more official guidance before the October 27–28 FOMC meeting.

The AI subplot#

Warsh's one real macro message in Bangkok was about AI. He called the AI investment surge "probably the most important thing that's happening in the global economy on the upside" — inflationary in the short term (it bids up memory chips and power demand) but potentially disinflationary over time through productivity. He also revealed a Fed task force will hold a public hearing in November to study AI's impact on the labor market. That's a new data point for the December decision.

Our take#

The market is pricing the silence, not the data — which is exactly the kind of divergence that makes the next two weeks tradeable. Warsh said the world has "broadly conformed" to the Fed's expectations, and he clearly wanted to give nothing away. But import prices at 8.1% y/y are the kind of number that makes a data-dependent Fed uncomfortable sitting still. Watch the 10-year (now ~5.03%, lowest since late September): if yields keep drifting down while the data runs hot, something has to give — and it's usually the pricing, not the data.

This is a news summary, not financial advice. Nothing here is a recommendation to buy, sell, or hold anything.