Could the Fed Hike Rates Earlier Than Markets Expect?

Why Another Fed Rate Hike Could Come Sooner Than Expected

Many investors think the Federal Reserve is done raising interest rates for a while. However, one prominent market expert believes the market might be in for a surprise.

Ben Emons, the founder of FedWatch Advisors, recently shared his outlook during an appearance on CNBC's Fast Money. He argues that financial markets are underpricing the likelihood of an interest rate hike at the Fed's upcoming October meeting.

According to Emons, persistent inflation pressures could force central bankers to deliver one or two more rate hikes before the end of the year.

Currently, the general market consensus leans toward the Fed holding rates steady at its October 27-28 meeting. This comes right after policymakers bumped the benchmark interest rate up to a range of 3.75% to 4.00% in September.

Traders are relying heavily on data like the CME FedWatch Tool. That tool currently shows only about a 16% chance of a rate hike in October. But Emons points out that recent public statements from Fed officials and September's annual inflation reading of 3.7% suggest the odds of another increase are actually much higher.

Do Midterm Elections Influence Federal Reserve Decisions?

When major political events happen, people often wonder if the Federal Reserve will adjust its policy to avoid causing economic waves. Emons emphasizes that political calendars, such as midterm elections, are simply not a factor in the Fed's decision-making process.

Instead, central bankers are laser-focused on economic data. They want fresh, real-time figures rather than lagging indicators that tell stories from months ago. Gathering and verifying that real-time data takes time, which explains why policy shifts can feel unpredictable.

Emons highlighted recent discussions involving Fed official Kevin Warsh. During a meeting with the Managing Director of the International Monetary Fund (IMF), Warsh stressed that the Fed urgently needs more on-the-ground economic evidence.

Emons interprets Warsh's refusal to promise an immediate rate pause as a crucial clue in itself. It shows that central banks worldwide are tightening monetary policy together. While Emons admits that the Fed could still choose to pause in October, he remains convinced about the bigger picture.

At the end of the day, they are going to have to do more.

While many analysts expect a rate hike in December, political outcomes could still impact specific sectors. For instance, the result of upcoming congressional votes on November 3 could alter legislative support for public buildouts in artificial intelligence (AI) infrastructure.

Energy Prices, the US Dollar, and Inflation

A major driver of recent inflation is energy cost. Data from the Bureau of Labor Statistics (BLS) revealed that consumer prices jumped by 0.6% in a single month, with higher gasoline prices accounting for more than half of that total increase.

Emons warned that rising costs in producer prices—often called pipeline pressures—will eventually filter down to everyday consumers.

So, how can the Fed tackle inflation when it is caused by energy prices? Emons explained the economic mechanism clearly: raising interest rates tends to strengthen the US dollar. Because commodities like oil are priced in dollars, a stronger dollar usually helps lower energy costs globally.

This pressure on commodity markets was already visible last week. Gold prices slid downward after higher-than-expected reports across consumer, producer, and import price figures.

Past performance of financial instruments or digital assets is not an indicator of future results.

Understanding Stallflation vs. Stagflation in Today's Market

Investors often fear 'stagflation'—a painful economic setup where growth stalls, inflation stays high, and unemployment rises. Emons clarifies that we are not in full stagflation yet because unemployment rates remain relatively low.

Instead, he points to a temporary phenomenon he calls stallflation.

• Neocloud Stocks: AI-focused cloud infrastructure providers are beginning to signal a operational slowdown.
• Tech Sector Pressure: Chip stocks recently suffered an eight-day losing streak as market doubts over AI monetization and high interest rates weighed heavy on investor sentiment.
• Job Market Support: On-the-ground construction and operations of data centers have helped prop up service-sector employment over recent months.

However, Emons cautions that if job support in the tech and data center sectors begins to fade while energy-driven inflation stays high, the economy could slip into true stagflation.

For crypto and traditional asset investors alike, keeping a close eye on incoming Fed data and inflation metrics remains essential, as macro conditions can create sharp shifts across all asset classes.