Two senior Federal Reserve officials' remarks this week still significantly shaped investor expectations, even as Fed Chair Warsh has made clear he does not want to signal a specific rate path through forward guidance.

Fed Vice Chair Jefferson and New York Fed President Williams said in succession that the central bank has time to further assess the economic situation and need not rush another rate hike, prompting markets to sharply cut bets on an October increase.

According to federal funds futures pricing, before Williams spoke on Tuesday, traders saw about a 70% chance of a hike at the Fed's October 27-28 meeting. By the time Jefferson finished speaking on Thursday, that probability had fallen to about 25%.

Inflation data released in between came in weaker than expected, further eroding expectations for a near-term hike.

Still, Fed officials have not ruled out further monetary tightening. Inflation remains above the policy target, and the U.S. consumer price index (CPI) data due October 14 could be a key factor in determining the next policy direction.

Two Fed Officials Speak in Succession, Markets Quickly Cut October Hike Bets

The Fed voted unanimously to raise rates by 25 basis points at its September 16 meeting, the central bank's first rate increase since 2023.

At the time, overall U.S. economic growth was showing signs of acceleration and inflation remained stubbornly high, prompting policymakers to resume tightening.

In the economic projections released afterward, Fed officials signaled a possible additional hike this year.

That policy backdrop quickly drove markets to bet on another increase in October, and Treasury yields climbed sharply, further pushing up borrowing costs for the U.S. economy.

However, speeches by Williams and Jefferson just two days apart this week changed the market's judgment on the timing of a hike. Both stressed that the Fed can wait for more economic data before deciding whether further rate increases are needed.

Because the New York Fed president not only has a permanent vote on the Federal Open Market Committee (FOMC) but also traditionally serves as its vice chair, Williams' policy remarks have always drawn intense market attention.

Traditionally, the Fed chair, vice chair and New York Fed president are seen as the core trio in monetary policy decision-making.

Under some former chairs, investors often believed that public remarks by the vice chair or the New York Fed president could reflect the shared stance of this core decision-making group.

However, there is no evidence that Jefferson and Williams coordinated their remarks in advance, nor is there evidence that their speeches were arranged under Warsh's unified direction.

Even so, several Wall Street institutions believe the two officials conveyed a relatively consistent policy message.

Goldman Sachs economists said the remarks by Jefferson and Williams further reinforced their view that the Fed is unlikely to raise rates in October.

Evercore ISI economic research head Krishna Guha and colleagues said in a Thursday note that the joint message from the two officials carries considerable weight.

JPMorgan chief U.S. economist Michael Feroli argued that the two speeches were intended to adjust market expectations.

He noted that the core message from both officials is that the Fed does not have to raise rates at every meeting in succession, but can instead space out policy adjustments to assess economic data and the impact of previous hikes.

Warsh Downplays Forward Guidance as Fed Turns More Data-Dependent

It is worth noting that the Fed officials' clear impact on market expectations this week comes as Warsh seeks to change how the central bank communicates with investors.

Unlike the past approach of guiding market rate expectations through forward guidance, Warsh prefers to avoid hinting in advance at the direction of future policy adjustments.

He does not take part in the Fed's quarterly rate projections and tries to avoid revealing the next rate move in public remarks, instead encouraging investors to judge the policy outlook on their own based on economic data.

This communication style has won support from some economists.

Critics of forward guidance argue that during special periods such as financial crises, clear policy commitments help stabilize market expectations; but in an environment where economic data change rapidly and policymakers struggle to accurately judge the future path, over-reliance on forward guidance may limit policy flexibility.

The economic data released this week illustrate that complexity.

On one hand, both inflation and employment data came in weaker than expected, reducing the urgency for the Fed to raise rates again immediately; on the other hand, U.S. consumer spending remains resilient and economic growth is showing signs of acceleration.

That means the Fed must both guard against persistently high inflation and watch for possible weakness in the labor market.

Ellen Meade, an economics professor at Duke University who long served as an adviser to the Fed Board, believes the remarks by Jefferson and Williams may not qualify as forward guidance in the traditional sense.

She noted that there is a subtle but important difference between committing in advance to a rate adjustment and saying more time is needed to gather data and make a prudent decision.

William English, a Yale School of Management professor and former Fed division head, likewise believes the two officials' speeches may not have been coordinated and more likely reflected their separate judgments on the economy and monetary policy.

Several Officials Stress Patience, but Divisions on Rate Hikes Remain

Beyond Jefferson and Williams, remarks from other Fed officials this week also showed that the policy-making layer currently prefers to wait for more guidance from economic data.

At a conference in Asheville, North Carolina, Richmond Fed President Barkin, Boston Fed President Collins and Kansas City Fed President Schmid all declined to clearly reveal their policy judgments for the year's final two meetings.

Asked about the future rate path, all three stressed the need to watch upcoming data.

Barkin said the first step is to see how the economic situation develops.

Later, Fed Governor Bowman, who oversees bank supervision, also said there is no urgent need to adjust rates again.

Still, not all Fed officials share the same view on further rate hikes.

Dallas Fed President Logan, who has actively advocated higher rates this year, said this week that multiple hikes may still be needed for inflation to eventually return to the Fed's 2% target.

But she also noted that the term premium in the bond market is rising, which could also exert some restraint on the economy.

Wall Street Reassesses Rate Path, October 14 Inflation Data Seen as Key

After the string of Fed officials' speeches this week, market judgments on the monetary policy path for the rest of the year have changed markedly.

Eric Wallerstein, chief macro strategist at Clocktower Group and a former adviser to former Fed Governor Milan, believes the remarks by Jefferson and Williams were meant to correct market expectations for the pace of near-term rate hikes.

He said that when market pricing diverges from the economic and policy reality as officials understand it, it is not new for the Fed to influence investor expectations through public communication.

Still, the wait-and-see signal from officials does not mean the hiking cycle is over.

On one hand, the Fed's September policy projections still show that policymakers expect one more hike may be needed this year; on the other hand, the recent sharp rise in U.S. Treasury yields also means officials need to assess the impact of tighter financial conditions on the economy.

At the same time, the consumer price index due October 14 will provide the Fed with fresh inflation clues.

If price pressures remain high, another hike could still be a policy option; if inflation continues to cool, policymakers may gain more room to observe economic changes.

It is worth noting that the U.S. September employment report released on Friday showed nonfarm payrolls rose by only 29,000, further strengthening market expectations that the Fed will hold off on raising rates.

Based on market pricing released that day, the probability of an October hike had fallen further to about 14%, below the roughly 25% level when Thursday's speeches ended.

Overall, the core signal from Fed leadership this week is not that rate hikes are over, but that there is no need to rush into action at two consecutive meetings.

Although Warsh is downplaying traditional forward guidance, the remarks by Jefferson and Williams show that Fed officials' policy comments can still significantly shape market expectations.

With employment data weakening and inflation pressures not yet fully gone, the timing of the Fed's next rate adjustment will still depend on growth and inflation conditions reflected in economic data over the coming weeks.