NEW YORK — Expectations are building that the Federal Reserve will leave its benchmark interest rate unchanged this month, as artificial intelligence stocks slump and U.S. home sales deteriorate.
The federal funds futures market on the 20th raised the probability that the Fed will hold rates at its Oct. 27-28 meeting of the Federal Open Market Committee to 84.5% from 81.2% a day earlier, according to the CME FedWatch tool. The chance of a rate increase fell to 15.5% from 18.8%.
The shift reflects a view that the need for tighter policy has eased considerably as investor sentiment toward AI infrastructure spending soured this month. Most AI and semiconductor stocks on Wall Street have traded weakly since the credit standing of CoreWeave, the largest player in the neocloud industry, deteriorated sharply on the 14th. Demand for safe assets has instead picked up, pulling U.S. Treasury yields down from their highs and relieving much of the pressure for a rate increase. As recently as the 13th, just before the CoreWeave problem surfaced, the market-implied odds of a rate increase this month stood at 22.1%, 6.4 percentage points above the current 15.5%. Neocloud providers offer cloud services built on graphics processing units and tailored to AI and high-performance computing.
The technology-heavy Nasdaq Composite slipped 0.02% on the 20th, diverging from the blue-chip Dow Jones Industrial Average, which rose 1.02%. Many technology names fell, including Nvidia (-0.29%), Apple (-1.00%), Microsoft (-0.31%), Google parent Alphabet (-1.13%), SpaceX (-0.11%), Facebook parent Meta (-1.59%), Broadcom (-0.07%), SK hynix (-2.16%), Micron (-0.98%) and AMD (-0.62%). The Philadelphia Semiconductor Index also closed down 0.29%.
A frozen U.S. housing market, hit by generally high interest rates, is another factor supporting expectations for a pause. The National Association of Realtors said on the same day that its index of pending home sales fell 7.3% from August to 66 in September. That is the lowest level since the series began in 2001. Contracts dropped sharply across the country. The West posted the steepest decline at 9.2%, while the South, the largest housing market in the United States, fell 8.2%. Pending sales are considered a leading indicator of the housing market because contracts are typically signed one to two months before deals close.
The National Association of Home Builders said a day earlier that its Housing Market Index fell three points from September to 29 in October. That is the lowest reading since June 2012 and below the 31 expected by analysts polled by Dow Jones. The index measures builders' sentiment toward the market for newly built single-family homes. A reading below 50 means more builders view conditions as poor than good. The index has stayed below 50 for more than two years. In the same survey, 43% of builders said they had cut selling prices because of weak demand, also the highest share since 2020. The average price cut reached 6%. Some 65% of builders said they were offering sales incentives such as help in lowering mortgage rates.
The average rate on a 30-year U.S. mortgage was 7.40% as of the 15th, the highest in three years, or since November 2023, according to Freddie Mac, the government-backed mortgage company. The rate was just 5.98% as recently as Feb. 27, the day before the war with Iran began. "Housing starts, which reflect new home construction, also fell 5.2% from August to 1.221 million units in September," The Wall Street Journal said, adding that U.S. Treasury yields slipped on weaker-than-expected housing data as potential buyers, strained by high mortgage rates, stayed on the sidelines.