Is the market waiting for a Fed rate hike or the U.S. midterm elections?

Recently, a senior gentleman from Shandong Province went viral online with these words: 'Life is but a fleeting process—brief as a passing thought. Morning hair black as silk, evening hair white as snow: that’s how fast a day passes. Cherish time; cherish life.' Investing often hinges on a single moment of judgment. Take the present moment, for instance: many people resolved earlier this year to make big gains in China’s A-share market, only to be harshly schooled by it in the second half—feeling as though the sky itself had collapsed. Precisely at such times, I want to emphasize: pessimists are often right, but optimists are the ones who actually profit. This 'bear market' is exceptionally short—just 'a fleeting moment'—and will pass in the blink of an eye. The future will surely bloom with splendor. I. Will the Fed raise rates in October? Many fear a Fed rate hike at the end of October. In fact, according to market pricing as of October 19, 2026, the probability of a rate hike at the end of October stands at just 17%. I believe the Fed is more likely to 'hold steady' (i.e., keep rates unchanged) in October, for two main reasons. First, the Fed remains broadly dovish. In September, the Fed delivered yet another hike in this tightening cycle, raising its target federal funds rate range to 3.75%–4.00%. The Fed has shown resistance to rapid, consecutive hikes. Chair Powell, ahead of the pre-meeting blackout period, deliberately maintained ambiguity—neither paving the way for a hike nor fully ruling one out—suggesting internal consensus remains elusive. With only six weeks elapsed since the last meeting and insufficient new data available, it is inherently unlikely that a generally dovish Fed would act again so soon. Although rising energy prices warrant vigilance, skipping October and instead hiking in December and again in March next year remains entirely feasible. This path preserves room to assess upcoming labor and inflation data—and allows flexibility in calibrating the terminal rate. Second, the likelihood of 'holding steady' is high ahead of the midterm elections. The October 28 FOMC decision falls just six days before the November 3 midterm elections. Regardless of whether the Fed hikes or not, any action risks being interpreted as politically motivated. For an institution whose credibility rests on data-driven decisions, introducing policy surprises immediately before an election entails enormous communication costs and reputational damage. Even if politics alone cannot determine the outcome, it is enough to tip the committee toward inaction when the decision lies on the borderline between 'hike' and 'hold'. Since 1962, across 16 midterm election cycles, the Fed raised rates only twice within the 30 days preceding an election (12.5%); cut rates three times (18.75%); held steady seven times; and scheduled no meetings during the window in four cycles. If we combine 'holding steady' with 'no meeting scheduled', the Fed refrained from any rate adjustment in 11 of the 16 cycles—68.75% of the time.

Fed monetary policy cycle and major asset class performance analysis (October 2025–October 2026), plus forward outlook

Fed Monetary Policy Cycle and Major Asset Class Performance Analysis (October 2025–October 2026), Plus Forward Outlook ⚠️ Important Notice: This article offers only macro-level logical review and scenario-based reasoning—not investment advice. Cryptocurrencies are highly volatile and carry substantial risk of principal loss. All forecasts are based solely on currently published economic data; unexpected deviations in subsequent CPI, nonfarm payrolls, core PCE, or other key indicators could directly alter market trajectories. The Fed has a statutory dual mandate: price stability and maximum sustainable employment—these two objectives form the foundational logic behind its decisions to raise or lower rates. To gauge inflation, the Fed prioritizes the core PCE price index (its official policy benchmark, with a long-term target of 2%); markets closely track CPI and core CPI. For producer-side inflation, the Fed monitors the PPI. To assess labor market strength, the Fed focuses on nonfarm payroll growth, the U3 unemployment rate, and average hourly earnings; supplementary indicators include weekly initial jobless claims, JOLTS job openings, and the labor force participation rate. When inflation persistently exceeds the 2% target *and* the labor market overheats—with wages rising rapidly—the Fed tends to hike rates, raising funding costs to suppress aggregate demand and curb price pressures. Conversely, when inflation consistently recedes *and* labor market conditions meaningfully weaken—with unemployment rising steadily—the Fed initiates a rate-cutting cycle to lower funding costs, support the economy, and safeguard employment. I. October 2025–October 2026: Data and Rate Policy Review 1. October 2025–December 2025: Late-stage easing; modest inflation rebound; gradual labor market softening At its October 2025 FOMC meeting, the Fed cut rates by 25 bps, lowering the federal funds rate target range to 3.75%–4.00%, marking the tail end of its prior easing cycle. Data characteristics: Nonfarm payroll growth continued to decline; unemployment edged up slightly. Core PCE briefly fell near 2.2%, but rebounding energy prices pushed headline CPI higher, sparking market concerns about persistent inflation. By year-end 2025, the Fed paused easing and entered an extended 'hold' phase—observing whether the trends in inflation and employment would prove durable. 2. January 2026–July 2026: Rates unchanged; inflation proves resilient; labor market fluctuates For the first seven months of 2026, the Fed held rates steady at 3.75%–4.00% across seven consecutive meetings. • Labor data: January nonfarm payrolls surged to +187,000—indicating strong hiring; February saw negative growth, signaling rapid cooling; March rebounded sharply to +214,000, exceeding market expectations for labor market resilience. Payroll growth notably slowed in May, June, and July—even turning negative again. Unemployment remained range-bound at 4.1%–4.3%, showing no sharp deterioration; wage growth remained volatile, with average hourly earnings continuing to rise—exerting upward pressure on services-sector inflation. • Price inflation: Core CPI and core PCE declined more slowly than expected. Rising crude oil prices lifted headline CPI, stalling the disinflation trend. Markets gradually abandoned hopes for rapid further easing.

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The Federal Reserve is expected to hold interest rates steady as inflation remains high, driven partly by surging global oil prices reaching $114 per barrel and record-high diesel fuel costs impacting agriculture and transport.

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