Fed Could Raise Rates in October, Says Bhave

• The market briefly priced in a 60% chance of an October hike after problematic CPI data, but then reverted to low odds.
• Bhave questions if the Fed is serious about not guiding markets, suggesting inaction on a hike could undermine their credibility.
• He warns that delaying a second hike could lead to core PCE inflation returning to 3.4% by year-end and notes rising survey-based inflation expectations.
• Wage inflation is currently the Fed's 'solace,' but if it accelerates, the Fed might need to hike rates to 5%.

Aditya Bhave of BofA Securities argues that the Federal Reserve could surprise markets with an October rate hike, despite current low market expectations. He highlights the risks of the Fed not acting on inflation, including losing credibility and allowing inflation expectations to rise, which could necessitate more aggressive hikes later.