October rate hike odds Crash to 15.5% After Hawkish Fed Minutes

October rate hike odds just got cut by more than half. Fed minutes released on October 7 show most officials expect one more increase by year-end, but traders now think the move is more likely in December, and Polymarket gives an October 27-28 hike only about a 15.5% chance.

What actually happened

At the September 15-16 meeting the Fed voted 12-0 to raise the federal funds range by a quarter point to 3.75%-4.00%. Invested Alpha notes it was the first increase since July 2023, and the minutes say "all participants supported" it. In July, three regional presidents had dissented in favor of hiking sooner.

The headline line from the minutes is the year-end one. Most officials think one more hike is likely before the end of 2026. That leaves two meetings: October 27-28 and December 8-9.

The minutes also show the unanimous vote hid two different stories. Some officials worry energy and supply shocks could spread into broader prices. Others think demand is the bigger driver. A supply-shock hike can pause once oil calms down, and a demand hike may need follow-through.

Why the odds collapsed

The data turned softer right before the minutes. According to etf.net, August PCE inflation came in at 3.4% and core at 3.0% on September 30, while Fed staff had estimated 3.8% and 3.4% at the meeting. Part of that gap came from changes in how the BEA measures some components.

Jobs also cooled. September payrolls rose 29,000, against roughly 90,000 expected according to 24/7 Wall St, and unemployment was 4.2%. New York Fed President John Williams said there was "no need for urgency".

The baseline for the drop depends on who you ask, and we are not averaging them. Reuters, cited by Invested Alpha, says FedWatch fell to below 20% from 37.6% a week earlier. 24/7 Wall St reports 19.4% from 50.9%, after a September 24 peak of 77.5%. etf.net cites about 20% from about 51%.

What Polymarket thinks

On the Polymarket October Fed market, "25 bps increase" traded at 15.5% (bid 15, ask 16) at 06:10 UTC, down 18 points over the week. "No change" was 83.5%. Cuts and a 50+ bps hike were all under 1%.

December tells the rest of the story. In "Fed Decision in December?", a 25 bps increase was at 73.5% and no change at 23.5%. A separate market, "Another Fed rate hike in 2026?", was at 76.5% Yes. So traders broadly agree with the minutes. They just think the Fed waits.

October rate hike odds near 15% are not zero, though. This market resolves on the FOMC statement after the October 27-28 meeting, and one hot data print could reprice it fast.

What could flip it back

September CPI lands on October 14, two weeks before the meeting. Invested Alpha and 24/7 Wall St both flag it as the big test. A hot print would revive the October trade, while a soft one keeps December as the window.

Bonds are the other pressure point. Invested Alpha says the 10-year yield hit 5.35% before settling near 5.29% after a $39 billion auction. CoinDesk reported it at 5.31% on Thursday as oil jumped above $102. Higher energy costs are exactly the kind of shock the hawks worry about.

Also note the calendar. The October meeting comes before the next PCE report on October 29 and the October jobs report on November 6. The Fed will vote in October without either one.

What to do as a reader

Treat October rate hike odds as a bet on timing, not direction. The minutes and the December market both point to one more hike this year. The open question is October versus December, and CPI on October 14 is the swing factor.

If you trade these markets, read the resolution rules, watch spreads, and remember that $28.5 million in volume still moves on headlines. For background, see our Polymarket October Fed odds explainer and our September jobs report breakdown. If you hold crypto, higher yields matter too, which is why our Bitcoin $90K October odds piece keeps an eye on the Fed. None of this is investment advice.