Fed officials wash away market bets on October rate increase

NEW YORK, Oct 1 (Reuters) - Two of the Federal Reserve's top policymakers this week drove financial market participants to price out expectations of an interest rate increase at the central bank's late October policy meeting as they made a case to take in more data before deciding what's next for monetary policy.

"There is ‌no need for urgency" on changing the current setting of monetary policy, Federal Reserve Bank of New York President John Williams said on Tuesday at an appearance at the ‌University at Buffalo. Williams also serves as vice chair of the central bank's rate setting Federal Open Market Committee.

Federal Reserve Vice Chair Philip Jefferson on Thursday echoed that view.

"Any future adjustments in policy should be determined by carefully examining trends in ​the data, the evolving outlook, and the balance of risks," the bank's second-in-command said in the text of remarks to the Darden School of Business at the University of Virginia.

Noting that markets are "reassessing" the outlook amid rising bond market yields, Jefferson said, "my colleagues and I will need to come to our own judgment, which may take more time," adding: "With more data in hand, such trends may lend themselves to better discernment, as may the appropriate stance of monetary policy."

Williams' comments were the pivotal event for markets and helped wash away expectations that the Fed would raise rates at an October 27-28 FOMC meeting. Jefferson's comments helped lock ‌in the shift in sentiment.

Global brokerages now largely expect the Fed ⁠to hike rates only once more this year, in December rather than in October.

Jefferson "has confirmed the message from NY Fed President Williams: the Fed does not expect to deliver a back-to-back rate hike at its coming October meeting and will take more time to consider evolving economic conditions," said analysts at ⁠Evercore ISI. "We think the joint message from Jefferson and Williams is authoritative" in an environment where Fed Chairman Kevin Warsh is not providing much if any guidance on where interest rates are heading.

SGH Macro Chief US economist Tim Duy said "we think Williams needed to be unusually clear because market pricing for rate hikes was running away from the Fed. This is a consequence of the lack of forward guidance" from the Fed's leader, Duy ​told ​clients.

The two Fed officials spoke after the Fed lifted its interest-rate target by a quarter percentage point at its ​mid-September policy meeting, to between 3.75% and 4%. Official forecasts also nodded toward ‌boosting rates one more time this year.