John Williams is president of the New York Fed. On October 13, he said he sees no reason at this time to expect more rate hikes in 2027. The Fed, or Federal Reserve, is the US central bank. A rate hike means the Fed raises its benchmark interest rate.
On the same day, futures traders put about 90% odds on a higher Fed rate by the end of 2027, according to CME FedWatch. Their bets point to a rate at least half a percentage point higher by then.
One of the Fed's most senior officials disagrees with the traders who bet money on the Fed's path. To read that split, you need to know where the market's odds come from. The second piece is the route those odds take to the bonds and stocks in your account.
The October 13 split
Williams spoke to Bloomberg News. "I haven't changed my view that it may be appropriate to have one more rate hike," he said. He added that he does not "at this time" have "any reason to believe that we would need to do more" in 2027.
Williams said, "I still believe there's disinflationary forces at play." Disinflation means prices keep rising, but at a slower pace.
The Fed's policy rate is the benchmark rate it controls. That rate sits in a 3.75% to 4.00% range. The Fed reached that range with a quarter-point hike in September. Its next meeting runs October 27 to 28, 2026.
Fed officials publish their own rate forecasts, and those forecasts lean away from Williams. Eight of the 18 officials who gave a forecast for 2027 see one more increase that year. That increase would follow an additional hike in 2026. Traders put more weight on hikes than those forecasts do.
The source of the odds
The 90% figure comes from a tool called CME FedWatch. CME Group runs the Chicago exchange where the underlying contracts trade. FedWatch draws on one product: 30-day fed funds futures.
The federal funds rate is the interest rate banks charge each other for overnight loans. The Fed sets a target range for it. A futures contract is an agreement to settle a trade later at a price fixed today.
A 30-day fed funds futures contract is a bet on the average overnight rate across one calendar month. Once the month ends, the two sides settle the contract against the actual average.
The pricing rule has one step. Traders price each contract at 100 minus the average rate they expect for that month. A contract at 95.67 implies, or points to, an average rate of 4.33%.
Traders who expect higher rates sell these contracts, and the price falls. Traders who expect lower rates buy, and the price rises. The implied rate moves the opposite way to the price.
Each month has its own contract. Line them up and you get a curve. That curve shows the average rate traders expect for each month ahead. It stretches past the end of 2027.
From prices to percentages
FedWatch turns that curve into odds. For each Fed meeting, the tool compares the implied rate with the levels the Fed could set. The Fed moves in steps, so it has few choices: hold the rate, raise it or cut it.
Suppose the implied rate for a month lands between "no change" and "one more hike." FedWatch reads that position as a probability for each outcome. The closer the implied rate sits to the higher level, the higher the odds FedWatch shows for a hike.
Each Fed meeting lands partway through a month. The tool accounts for the days before and after each decision. After that, it chains the results meeting by meeting into later months.
Run that chain out to December 2027 and you get the number from October 13. Traders put about 90% odds on an overnight rate at least half a percentage point higher by end-2027.
FedWatch showed about 90% odds that the Fed's overnight rate ends 2027 at least half a percentage point higher
Two limits matter. The odds are a price, and they move each time traders buy or sell. The price can carry more than a forecast. Some buyers pay for protection against higher rates. Their buying can push implied rates above a plain best guess.
One official, many traders
Williams gives one view from inside the Fed committee that sets rates. As New York Fed president, he votes at each policy meeting. Traders pool many views and back them with money.
The Fed itself is split. The count of eight out of 18 shows that a large group of officials sees a 2027 increase. Traders can give those officials' forecasts as much weight as Williams' words.
The next inflation report could tip the balance. The consumer price index, or CPI, is the government's monthly measure of the prices households pay. The government releases the September report on October 14 at 8:30 a.m. Eastern.
Forecasters expect headline inflation, which covers all items, of 3.6% from a year earlier. That would be up from 3.4% the month before. They expect core inflation at 2.5%, up from 2.4%. Core inflation strips out food and energy.
If the reading comes in hotter than those forecasts, traders tend to sell futures. Prices fall and implied rates rise. If the reading comes in cooler, traders tend to do the reverse. FedWatch updates its odds within minutes of the release.
The odds and your bonds
The fed funds rate covers one night. Most borrowing lasts much longer. The 10-year yield is the interest rate the US government pays to borrow for 10 years.
Investors set that yield with the short rates they expect over the decade in mind. On top of that, they add extra pay for locking up money that long. Investors who expect higher Fed rates through 2027 tend to demand a higher 10-year yield.
The 10-year yield ended October 13 at 5.217%, down 2.3 basis points on the day. A basis point is a hundredth of a percentage point, so 100 basis points make one percentage point. Over the past month, the yield is up 25.6 basis points.
The US 10-year Treasury yield over the past month, ending at 5.217% on October 13
Lenders tie mortgage rates, car loan rates and company borrowing costs to longer-term yields. Borrowers can feel a shift in futures odds in those rates before the Fed changes anything.
The odds and your stocks
Investors have two reasons to pay less for stocks as yields rise. First, bonds pay more, so stocks have to offer more to win the same dollar.
Second, analysts value a company by converting its future profits into today's money. At a higher interest rate, those future profits are worth less today. Companies that expect most of their profits years from now feel that most.
The S&P 500 is an index, or tracked basket, of 500 large US companies. It ended October 13 at 7,805.45, down 0.02%. The Russell 2000, an index of smaller US companies, ended the day down 0.40%. Over the past month, the Russell 2000 is down 3.76% and the S&P 500 is up 2.43%.
Smaller firms tend to borrow at rates that reset with the Fed's. As rate expectations climb, their interest bills rise ahead of those at bigger firms. Many causes sit behind the gap between the two indexes. Rates are one of them.
Dates on the calendar
- October 14, 8:30 a.m. Eastern: September CPI release.
- October 27 to 28: Fed policy meeting, with the decision on October 28.
Reading the odds
A headline that says "markets expect a hike" is quoting futures prices like the 95.67 example. Traders change those prices after new data and Fed speeches. Williams' October 13 comments did not erase the 90% figure.
The chain runs in one direction. Traders set futures prices, and FedWatch turns those prices into odds. The odds feed the 10-year yield. Stock investors weigh that yield when they decide what to pay for a share.
A portfolio is the set of investments you hold. This chain lets one CPI report or one interview move a portfolio with no bonds in it.
FedWatch shows you the market's current price for the Fed's path. Fed officials show you their own read. You can check the two side by side before each meeting.
Sources
Not investment advice.