Financial markets are now much more confident that the US Federal Reserve will raise interest rates rates at least one more time this year.

According to CME Fedwatch, there’s now a 55% chance that US rates are half a percentage point higher by the end of December – implying two quarter-point rate rises (or one beefy hike!). That’s on top of the Fed’s hike earlier this month.

The main story is still the huge global bond selloff, with yesterday seeing the biggest jump in the 10yr Treasury yield (+15.2bps) since the market turmoil around Liberation Day in April 2025.

The main driver was a strong batch of PMIs, along with a rebound in oil prices, which both led to mounting speculation about faster rate hikes. Indeed, futures this morning are pricing a 71% chance of a Fed rate hike at the next meeting in October.

With unemployment at 4.1% and growth running above trend, the US economy is showing signs of modest overheating. The Federal Reserve will therefore be firmly on notice.

If the next inflation readings continue to print hot, policymakers may conclude that aggregate demand needs to be brought lower through the blunt tool of higher interest rates.

In the US, flash PMI figures for September showed activity expanding at the fastest pace in more than five years. New orders grew at the fastest pace since April 2022, while manufacturing hiring was the strongest since February 2021.

Massive AI investment and resilient consumer spending outweighed energy-price-led worries, though supplier delivery times stretched, according to the same data, while input costs remained elevated due to high energy prices and supply-chain pressures.

11am BST: CBI distributive trades survey of UK retailers

8.30am BST: Swiss National Bank’s interest rate decision

3pm BST: Bank of England’s Clare Lombardelli speech on “Macroeconomic Policy in a Heterogeneous and Imperfectly Rational World”