Fed Minutes Turn Hawkish, Markets Shrug Before CPI

Week of October 5 to October 9, 2026

The Fed sounded hawkish this week, and markets mostly shrugged. The September meeting minutes showed a central bank united behind higher rates, yet stocks touched records, October hike odds stayed low, and gold bounced off a two-month low. Below is why a hawkish document landed so softly, what kept bond yields near multi-decade highs anyway, and how each of our seven markets responded.

The headline event was Wednesday's release of the minutes from the Fed's September 15 to 16 meeting. They showed that all 19 officials backed September's quarter-point hike to 3.75% to 4.00%, and that most saw another increase before the end of 2026 as likely appropriate. On paper, that is a hawkish message. In practice, the market barely reacted. The reason is timing: the minutes describe a conversation that took place before the cooler August PCE inflation report and the weak September jobs data we covered last week. Then on Thursday, Fed Governor Christopher Waller said the Fed should keep raising rates but does not need to move at every meeting. The result is a market that now sees an October hike as unlikely, at roughly 17% to 20%, while still pricing about an 80% chance of a hike by December.

That is a useful lesson about Fed communication. Minutes are a rear-view mirror. They tell you how officials were thinking three weeks ago, not how they think today. When fresh data has already shifted the picture, markets give more weight to what officials are saying now, which is why Waller's comments moved October odds more than the minutes did.

The bond market, however, did not relax. The 10-year Treasury yield touched its highest level since 2002 on Wednesday, and a 30-year Treasury auction on Thursday cleared at 5.618%, the highest for that maturity since 2000. The encouraging detail is that demand at that auction was solid, which helped pull yields back from their peaks into Friday. In the UK, the 30-year gilt yield set a new record above 6.03% on Wednesday, and in Europe, France's political and fiscal troubles kept French borrowing costs well above Germany's. Long-term borrowing costs around the world are being pushed up by the same mix: energy-driven inflation, heavy government borrowing and investors demanding more compensation for lending long.

Underneath it all, inflation is spreading beyond energy. The ISM services prices paid index jumped to 74.0, its highest since July 2022, which tells us businesses are paying more for services, not just fuel. Meanwhile, households are feeling the squeeze. University of Michigan consumer sentiment fell to 46.3, a five-month low, while one-year inflation expectations rose to 4.7%. That combination of weak confidence and rising inflation expectations is exactly the kind of mix that keeps a central bank uncomfortable, and it puts next Wednesday's CPI report firmly in the spotlight.

The Dow recovered part of last week's loss, finishing about 0.9% higher. The path was uneven: the index rallied with the broader market on Tuesday, when the S&P 500 set its first record close since mid-August, then slipped on Wednesday as the 10-year yield pushed back to multi-decade highs. It finished strongest on Friday, after Waller's comments and the solid 30-year auction eased pressure on yields. The pattern is the same one we described last week: the Dow is trading as a mirror of the bond market. When yields rise, the index weakens; when they ease, it recovers. Large technology names continue to lead the broader market, while the Dow's industrial and cyclical companies are more sensitive to borrowing costs.

Gold had a two-part week. It slipped below $4,100 midweek to a two-month low, as the dollar reached its strongest level since April 2025 and the 10-year yield climbed back toward its peak. Then it rebounded firmly on Thursday and Friday as both the dollar and yields eased, finishing the week up about 1.3% at $4,216. Last week, we flagged that gold fell even when yields and the dollar dropped, which hinted at position-trimming after a long run. This week, the normal relationship returned: gold rose when the opportunity cost of holding it fell. That is a healthier sign, although gold remains more than 20% below its January record near $5,600.

Oil ended almost where it started, but the week was full of competing headlines. On the bullish side, nine tankers were attacked in and around the Strait of Hormuz over a single week, Houthi militants fired missiles at Riyadh, and Hurricane Isaias forced companies to shut more than 70% of US crude production in the Gulf of Mexico. Those pressures pushed WTI up 3.6% on Thursday alone. On the bearish side, President Trump said the US would not attack Iran before the November 3 midterm elections, China moved to resume fuel exports, and Iran was reported to be reviewing a US response to its proposal to reopen the Strait of Hormuz. Brent settled near $104.72, keeping its large premium over WTI. Over the weekend, a deadly attack on Riyadh's airport added another layer of risk heading into the new week.

The euro opened the week by falling to 1.1161 on Monday, its lowest level in 17 months, before stabilizing in a tight range for the rest of the week. France is the main pressure point: political and fiscal stress has kept the gap between French and German 10-year bond yields near 141 basis points, a sign investors want a higher premium to lend to France. At the same time, ECB policymaker Martins Kazaks said the ECB is in a "fairly comfortable" position on rates, which cooled expectations of further hikes. European natural gas prices, more than double their pre-conflict level, add another drag on the region's growth. The late-week bounce came from a softer dollar, not from any improvement in Europe's own story.

Sterling finished flat for a second straight week, but it absorbed two strong opposing forces. On one side, UK borrowing costs hit a fresh record: the 30-year gilt yield jumped 13 basis points in a single day to above 6.03% on Wednesday, its highest since 1998, and the pound fell almost half a percent that day. On the other side, markets are now pricing roughly an 81% chance of a Bank of England hike in November, after three policymakers already voted for a hike in September. That expected tightening is giving the pound some support. Everything now builds toward Chancellor John Healey's first Budget on October 28, the same day as the Fed decision.

The yen slipped for a fourth straight week, but the pair stayed inside the tight 157 to 158.50 range it has held since October 1. The forces are the same as last week. The wide gap between US and Japanese interest rates keeps supporting the dollar, while Prime Minister Sanae Takaichi's expansionary fiscal policy and Japan's heavy debt load add to yen weakness. Above 158.50, however, the market remembers the coordinated US and Japan intervention this summer that pushed the pair back from above 163. Markets currently see only about a 25% chance of a Bank of Japan hike at the October 29 to 30 meeting.

The weekly close hides a sharp move on Friday. Canada lost 68,300 jobs in September, against expectations for a gain of about 9,000, following a loss of 41,700 in August. Unemployment rose to 6.5%. The loonie fell to its weakest level since early 2025, with USD/CAD briefly touching 1.4299. The report points to real damage from the trade dispute with the US, which intensified with new tariffs in recent weeks while negotiations have been suspended since August. As a result, markets have largely given up on a Bank of Canada hike this month. Oil rising for the week offered no help, the second week in a row that the usual oil and Canadian dollar relationship has broken down.

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This week showed that the loudest document is not always the most important one. The Fed minutes sounded firm, but the market listened more closely to fresh data and to what officials are saying now. Next week brings CPI, which could matter far more than anything we heard this week. Rather than trying to guess the number, it helps to decide in advance how each market might react in different scenarios, keep risk modest while ranges stay wide, and let price confirm the story before acting on it.

Fed'n Markets

Sources: Federal Reserve, CME FedWatch, Reuters, CNBC, Bloomberg, Yahoo Finance, FXStreet, Statistics Canada, The Globe and Mail, University of Michigan, Institute for Supply Management, Financial Modeling Prep (closing price data).

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