Traders Give Warsh A 42% Chance Of Doing Something This Month That Has Only Happened Once In The Past 36 Years
Fed Chair Kevin Warsh faces a decision in late October that the central bank has avoided almost without exception for over three decades, and hot inflation data just doubled the odds it could happen again.
At issue is a Federal Reserve rate hike within seven days of Election Day. Since 1990 the Fed has done it once, on Nov. 2, 2022. The Oct. 28 decision falls six days before the Nov. 3 election.
The FedWatch tool from CME Group (NASDAQ:CME | CME Price Prediction) priced an October hike at 41.5% at 12:20 PM ET on Oct. 14. That market pricing stands below half but marks a live possibility.
Hot Inflation Revived October
Invezz and Chosun Ilbo reported CPI rose 0.6% in September and 3.7% annually, above the expected 3.6% and August’s 3.4%. Core CPI rose 0.3% monthly and 2.6% annually versus 2.5% expected, per Invezz, which put gasoline up 9.1% and energy up 5.2%, with energy driving more than half the headline rise. Shelter rose 0.4%, per IBTimes.
The latest Bureau of Labor Statistics release runs through August, and Chosun Ilbo independently reported the 3.7% rate today. Odds were 22.1% before the report, per IBTimes, versus 41.5% now.
Policy Already Tightened
The Federal Open Market Committee raised rates 25 basis points in September to 3.75% to 4.00%, per Invezz. Fortune reported the unanimous vote was the Fed’s first hike in three years; HousingWire reported five straight holds at 3.5% to 3.75% through July. An October hike would produce 4.00% to 4.25%, per the Boston Globe. Chair Kevin Warsh said September’s move removed “a dose of accommodation,” though the full committee votes on rates.
A Single Precedent
The 2022 hike, six days before the midterms, was 75 basis points, per Fortune. September hikes in 2004, 2018 and 2022 came about six to seven weeks before Election Day, outside the window, and October hikes in 1978 and 1980 precede this period. Earlier records come from historical lists of Fed decisions, and the 2022 figures come from Fortune’s reporting.
Polymarket Favors Another 2026 Hike
Polymarket’s closest contract prices the total number of 2026 hikes. By Oct. 14, it showed 66% for exactly two, 21.7% for exactly three and 11.5% for exactly one. With one hike done, that favors another this year without identifying the meeting.
Analysts Split on Timing
UBS (NYSE:UBS) analyst Simon Penn wrote Sept. 29, before the CPI report, that an October hike on the eve of a midterm, absent for 35 years, was “politically untenable,” and expected December. RSM US economist Joseph Brusuelas saw little sign of disinflation and more than one further hike, questioning October and expecting 25 basis points in December. Capital Economics’ Stephen Brown called core upside broad based, putting October in play, and forecasts two more quarter-point hikes. The Cleveland Fed president told Barron’s Oct. 12 more tightness is needed, favoring smaller, more frequent moves without identifying a meeting. Reuters reported Oct. 3 that the Fed may skip October for December.
The Fed says it “does not factor the electoral calendar into its policy debates.” Any election effect remains the analysts’ interpretation.
Watch Oct. 28
A sample of one proves nothing, the probability stands below half, and the odds have swung widely. Odds were about 8.8% in late August and topped out at 70% to 73% on Sept. 23 and 24, per StockWire. They fell to about 47% after the New York Fed president saw no need for urgency on Sept. 29, and Coin Bureau cited about 19% on Oct. 9. Watch whether the odds firm up before Oct. 28, with December the alternative.
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AJ spent 10 years writing about financial markets at The Motley Fool. His coverage centers on technology stocks and the broader macroeconomic trends, from interest rates to geopolitics, that shape where markets are headed next. AJ is drawn to the stories where big-picture economics and individual companies collide.
