Analysis: It is not typical for the U.S. Federal Reserve to hike interest rates in October or November ahead of the midterm elections, with the market closely monitoring remarks from Waller.

U.S. September CPI rose 3.7% year-over-year and 0.6% month-over-month, while core CPI increased 2.6% YoY and 0.3% MoM, both exceeding market expectations. Following the inflation data release, market bets on the Federal Reserve raising interest rates by 25 basis points in October climbed to around 40%, up from roughly 20% the previous day. The Fed just implemented a 25 basis point rate hike last month, its first increase since 2023. The next interest rate decision is scheduled for October 28, just six days ahead of the U.S. midterm elections on November 3. Inflation remaining above the Fed’s 2% target and resilient economic activity have provided justification for further rate increases. Economists at firms including Jefferies and Nationwide argue that data supports rate hikes in both October and December, though some analysts expect the Fed may hold off action until December, citing the election timing and potential economic fragility. Historical data shows that Fed rate hikes in October or November ahead of midterm elections are uncommon. Markets will watch closely for remarks from Fed Chair Kevin Warsh ahead of the pre-meeting blackout period to assess his policy stance. This upcoming meeting will not only test the Fed’s resolve to tackle the inflation rebound, but also its ability to uphold policy independence and market trust during this politically sensitive period.