Markets broadly expect the Federal Reserve to leave interest rates unchanged at its October 27-28 meeting, with FedWatch data putting the implied probability of a hike at just 16%. Ben Emons, founder of FedWatch Advisors, says traders may be underestimating the possibility of another increase—an outcome that would matter for borrowing costs, liquidity and rate-sensitive assets.
The Fed raised its federal funds target range to 3.75%-4.00% in September. Emons said the inflation rate reached 3.7% in September, while recent comments from Fed officials suggest price pressures have not fully subsided. He expects the central bank could raise rates once or twice more in subsequent meetings.
October decision still depends on incoming data
Emons has not ruled out a pause at the October meeting. He said the market’s base case remains no change, but the Fed cannot set policy solely on current market pricing. The decision will also depend on economic data released over the next several weeks and on the real-time information available to policymakers.
Fed Chair Kevin Warsh told the managing director of the International Monetary Fund that the central bank wants more real-time information from the front lines of the economy. In Emons’ view, Warsh’s failure to commit to a specific action at the next meeting indicates that the policy decision remains open.
That leaves expectations for October vulnerable to shifts in inflation, employment and economic-activity data. If new figures show renewed price pressure, the pause could prove temporary. If economic momentum weakens further, the Fed may continue monitoring conditions rather than act immediately.
Midterm elections are not the Fed’s main variable
Emons said the US midterm elections are not a central factor in the Fed’s current rate decisions. Policymakers, he said, are more focused on timely economic information than on lagging statistics or election outcomes.
The central bank needs more firsthand data on businesses, consumers and the labor market, according to Emons. Because those indicators take time to accumulate, Fed officials may maintain a cautious tone in the near term, while markets will need to allow for changes in the expected rate path.
Emons also pointed to the possibility that major economies could tighten policy in parallel. If several central banks maintain restrictive stances at the same time, global financing costs and liquidity conditions could come under pressure. For digital assets and other markets sensitive to interest rates and liquidity, the Fed’s next moves remain an important macroeconomic variable, even though current October-meeting pricing assigns only a 16% probability to a hike.