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

Investing is often won or lost in a single moment of judgment. Take the present situation, for example: many people vowed earlier this year to make substantial 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. It is precisely at such times that I want to emphasize: pessimists are often right, but optimists are the ones who actually make money. This current 'bear market' is extremely short-lived—merely a fleeting moment—and will pass in the blink of an eye; the future will undoubtedly be resplendent and full of promise. I. Will the Fed raise rates in October? Many worry about a Federal Reserve 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 rates steady ('skip') in October, for two main reasons. First, the Fed remains broadly dovish overall. In September, the Fed delivered yet another hike in this tightening cycle, lifting its target federal funds rate range to 3.75%–4.00%. The Fed has shown resistance to rapid, consecutive hikes. Chair Powell, speaking just before entering the pre-meeting 'quiet period,' deliberately adopted an ambiguous stance—neither paving the way for a hike nor fully ruling one out. This ambiguity indirectly signals that consensus within the Fed has yet to coalesce. With only six weeks having elapsed since the last meeting—and without a full set of fresh economic data—the likelihood remains low that a generally dovish central bank would act again so soon. Although rising energy prices warrant vigilance, skipping October and instead hiking in both December and March next year remains a perfectly viable path. This approach preserves room to observe upcoming labor market and inflation data while also allowing flexibility to calibrate the terminal rate. Second, the probability of holding rates steady is high ahead of the midterm elections. The FOMC meeting on October 28 falls just six days before the November 3 midterm elections. Regardless of whether the Fed hikes or not, any decision risks being interpreted externally as politically motivated. For an institution whose credibility rests heavily on data-driven decision-making, introducing policy surprises immediately before an election entails enormous communication costs and reputational risk. Even if political considerations alone cannot determine the outcome, they are sufficient to tip the balance toward inaction when the case for action is marginal. 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 rates steady seven times; and scheduled no meeting at all during the 30-day window in four cycles. If we combine 'holding rates steady' with 'no meeting scheduled during the window,' the number of cycles featuring no rate adjustment rises to 11—68.75% of all cases. By any statistical measure, initiating a rate hike immediately before a midterm election remains a historically rare occurrence. The market’s current implied probability of a hike in October—17%—closely aligns with this historical precedent.

Will the FOMC raise rates at its October 27–28 meeting?

A rate hike in October is highly unlikely. This FOMC meeting occurs at an unusually sensitive time: the U.S. midterm elections fall on November 3—just five days after the meeting concludes—making it the most politically delicate meeting of the entire tightening cycle. Historically, the Fed follows an unwritten convention: in election years, roughly two-thirds of its October meetings result in no change to interest rates. The Fed seeks to avoid accusations of influencing electoral outcomes and thus underscores its institutional independence. Even when it does act in such contexts, it tends to cut rates—not raise them. This year’s situation is especially noteworthy: Chair Powell broke with precedent by raising rates in September. Another hike in October would provoke significantly greater political controversy. Powell recently remarked that he cares little about his legacy and only wants to get policy right—an implicit effort to erect a firewall ahead of the election and fully demonstrate the Fed’s independence. Of course, the Fed’s decision to hold rates steady in October does not mean it will refrain from hiking later. U.S. inflationary pressures persist, and oil prices remain elevated; consequently, the market currently assigns a 67.5% probability to a December rate hike. Once the election is over, the Fed will be unburdened by political constraints—and hiking will become far more straightforward and justified.

Fed Set to Hold Interest Rates Steady in Last Decision Before Midterms

5 hours ago

The US Federal Reserve plans to hold interest rates steady before midterm elections amid inflation exceeding 3% driven by geopolitical conflicts and soaring oil prices. This pause reflects a cautious stance despite political pressure and ongoing supply shock concerns.

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