Traders are pricing just a 16% chance of a rate increase at the Federal Reserve's Oct. 27-28 meeting, according to CME FedWatch. Ben Emons, founder of FedWatch Advisors, thinks that's far too low. He expects the central bank to hike once or twice more, even though markets have largely settled on a hold.
The Fed lifted rates to 3.75%-4.00% in September 2026. Since then, September's inflation reading came in at 3.7%, and energy costs did most of the damage.
Why Emons sees another hike coming
Emons points to a shift in how this Fed operates. He says the midterm elections aren't a factor for policymakers, who are focused on real-time data rather than lagging figures.
Fed Chair Kevin Warsh told the IMF's managing director that the Fed wants more on-the-ground data. Emons reads that as a signal the central bank is looking past the headline numbers and toward what's actually happening in the economy.
He also flagged synchronized global tightening, which he says adds pressure on the Fed to act rather than wait.
The market's 16% odds for October look misplaced to Emons. A December hike is widely expected, but he argues the case for moving sooner is stronger than traders acknowledge.
The energy problem
Energy drove half of September's 0.6% consumer price rise. Bureau of Labor Statistics data show gasoline alone accounted for more than half of the monthly increase.
Energy prices tend to fall when the dollar strengthens, and Emons says higher rates are one way to get there. That gives the Fed a reason to tighten even if the broader inflation picture looks mixed.
Gold slid last week after consumer, producer and import price reports all beat forecasts, a sign that markets are already adjusting to the idea of firmer prices.
Chip stocks and the 'stallflation' mix
Chip stocks logged an eight-day losing streak as AI doubts and rate fears weighed on the sector. Emons doesn't call the setup stagflation — unemployment isn't rising. But he says neocloud stocks may be signaling a slowdown, a combination he calls "stallflation."
Data centers have supported service-sector jobs in recent months, according to Emons. If that changes while energy keeps driving inflation, some form of stagflation follows.
The Nov. 3 midterm results could complicate the picture further. A Democratic Congress could alter the AI infrastructure buildout that has propped up parts of the labor market, giving the Fed another variable to weigh.
What to watch before Oct. 27
The Fed's next meeting is Oct. 27-28, and the market's 16% odds will be tested by the data flow between now and then. Emons expects one or two more hikes. Traders, for now, are betting on neither.
