Ben Emons, founder of FedWatch Advisors, suggests that markets currently underestimate the likelihood of a Federal Reserve rate hike at the October meeting. While market consensus leans toward a pause, Emons anticipates one or two additional increases, citing persistent inflationary pressures. The Federal Reserve previously raised rates to a range of 3.75% to 4.00% in September.
According to Emons, the upcoming midterm elections are not a primary factor for the Federal Reserve. Instead, policymakers are prioritizing real-time economic data over lagging indicators. Current projections from the CME FedWatch tool indicate only a 16% probability of a rate hike during the October 27–28 meeting. Emons also highlighted the importance of synchronized global monetary tightening.
Regarding inflation, energy costs contributed to more than half of the 0.6% rise in consumer prices during September, with gasoline being the primary driver. Emons notes that higher interest rates can strengthen the dollar, which in turn may help lower energy prices. He currently avoids labeling the situation as stagflation, as unemployment rates remain stable.
Emons introduced the term stallflation to describe the current economic climate, pointing to potential slowdown signals from AI-focused cloud providers. Meanwhile, chip stocks recently experienced an eight-day decline due to concerns over interest rates and the future of AI infrastructure. Data centers have been a key support for service-sector employment, but this could shift if inflation persists.
