Ben Emons: Markets Underestimate Fed Rate Hike in October

Ben Emons, founder of FedWatch Advisors, believes that markets are underestimating the likelihood of a Fed rate hike at the October 27–28 meeting. He expects one or two more hikes as inflationary pressures continue to build. On Friday, during CNBC's Fast Money, he stated that Fed speakers and September's 3.7% inflation imply higher chances.

Markets are leaning towards a pause after the September hike to 3.75–4.00%. According to CME FedWatch, the probability of a hike at the upcoming meeting is only 16%.

According to Emons, the midterm elections are not a factor for this Fed: policymakers want current data, not lagging ones, and that takes time. Fed Chair Kevin Warsh told the IMF Managing Director that the Fed needs more data 'from the ground.' Emons interprets Warsh's reluctance to commit as an independent signal and points to synchronized global tightening. However, he does not rule out a pause in October. 'Ultimately, they will have to do more,' he added. The host noted that a December hike is widely expected. Traders might wait for the results on November 3: a Democratic Congress could change AI infrastructure development.

Pressure in producer prices will reach consumers, says Emons. The host countered that energy accounted for half of September's 0.6% CPI growth and asked what the Fed could do about it. According to BLS, gasoline alone contributed more than half of the monthly increase. Emons replied that energy typically becomes cheaper with a stronger dollar, meaning rate hikes are one way to achieve this. Last week, gold fell after consumer, producer, and import price reports exceeded forecasts.

Emons does not yet label the situation as stagflation: unemployment is not rising. However, he believes that neo-cloud providers may signal a slowdown – he calls this mix 'stallflation.' Meanwhile, chipmaker stocks recorded an eight-day losing streak amid AI doubts and rate fears. According to Emons, data centers have supported employment in the service sector in recent months; if this changes amid energy inflation, some form of stagflation will follow.