The probability that the Fed will raise rates jumped from 22% on Tuesday to 47% on Wednesday morning, according to CME Group’s FedWatch tool. That is a coin flip with a mortgage payment attached.
The 3.7% inflation rate for September announced Wednesday morning was slightly ahead of analyst expectations. Bond traders in futures markets repriced whether the Federal Reserve will opt to raise rates again on Oct. 28.
Core inflation, which strips out energy and food prices, edged higher by a more modest 2.6%. The Fed’s target inflation rate is 2%.
Bond traders have been running up the 10-year Treasury bond rate, which is pushing borrowing costs higher and starting to freeze deals in the commercial real estate space. The analysts wrote that some disruption in CRE capital markets is highly likely at this point.
My read: the capital cycle is tightening, and this jump is a warning shot for anyone underwriting a deal today.