Futures Put 70% Odds on a December Fed Hike. The Dollar Hasn't Fully Priced It In.

Three weeks ago, Fed funds futures gave the October 28 meeting roughly even odds of a rate hike. That number has since fallen to about 20%, not because the Fed turned dovish, but because traders shifted the bet to December.

[[IMG1]]

The Federal Reserve hiked its benchmark rate by a quarter point on September 16, lifting the target range to 3.75%-4.00%. It was the first increase since 2023, arriving in a cycle markets had spent most of the year expecting to end in cuts. The committee voted unanimously.

The minutes from that meeting, released October 7, read more hawkish than the decision itself suggested. Most participants, the Fed wrote, considered another increase likely appropriate by year-end. A couple of officials raised their estimate of the neutral rate, the level at which policy neither stimulates nor restricts growth, and several said the current rate is only mildly restrictive, if that. Markets had been pricing hikes at both the October and December meetings a few weeks earlier. They've since consolidated almost entirely on December.

Two regional Fed officials backed that reading within 48 hours. Governor Christopher Waller said Thursday that more hikes are needed but don't have to land at back-to-back meetings, a line that reads as reassurance until you notice what it concedes: more hikes are coming, just not necessarily in October. St. Louis Fed President Alberto Musalem went further, telling reporters rates should keep rising over the next six to nine months.

Futures reflect that split. CME-tracked odds on October 9 showed about 20% probability of a hike at the October 28 meeting and roughly 70% for December 9. The two-year Treasury yield, the maturity most sensitive to near-term Fed moves, slid from 4.84% on October 5 to 4.75% by October 8 as traders priced out the nearer-term move.

The dollar index has told a more hesitant story. It traded near 102.25 on October 9, just under Monday's 18-month high of 102.50, and posted a lower high in each session since the minutes came out. The index touched that same 18-month mark once before, in July, during Japan's yen intervention. This is a ceiling the market has tested and not yet broken.

Gold is caught between the two forces. It opened October 9 near $4,169 an ounce, up 1.26% on the day but down 5.64% from a month earlier, when it traded above $4,400. A Fed that hikes again should, in theory, pressure gold by making a yield-free asset less attractive next to a rising dollar. A Fed that signals it isn't finished tightening because inflation won't cooperate does the opposite: it keeps the inflation hedge trade alive. Which force wins out from here probably depends on the next inflation print more than anything the Fed says.

This isn't the first time the market has whipsawed on hike odds this cycle. September's payrolls report, which came in at 29,000 against expectations of 90,000, had knocked the odds of an October hike down to 17% before Waller and Musalem's comments nudged that number back up toward 20%. The data has been noisy enough that a single report can move the needle five points in either direction.

Bitcoin's reaction to the broader hike signal has already shown how fast sentiment can turn. It fell below $83,000 the same day the Fed first signaled it wasn't done hiking, a reminder that the asset most levered to easy-money expectations tends to move first and hardest when that story changes.

What to Watch Next

The September CPI report lands October 14. A reading that confirms core inflation is still cooling would give the doves on the committee something to point to. Core PCE, the Fed's preferred gauge, had slowed to 3.0% in August, so a softer CPI print would be consistent with that trend. A hotter number would do the reverse, and probably push those December odds higher still.

The October 28 meeting itself is likely to be a non-event by comparison. With futures pricing only a one-in-five chance of action, the real decision point is December 9, the last meeting of the year and the one where Waller's and Musalem's commentary suggests the committee is most likely to act again.

The Pulse24 Take

September's hike wasn't the real story. The minutes and the commentary since are: together, they show the committee expects to keep going, not pause for a quarter and reassess. That's a different market setup than the one most investors spent 2026 planning for, and the dollar's hesitation near its own highs suggests traders haven't fully committed to pricing it in either. Watch the CPI print on October 14 more closely than the October 28 meeting itself. That number, not the meeting eleven days later, decides whether December ends up a formality or a live question again.