Fed Rate Decision: Hold Expected as Brent Nears $115 Pre-Midterms

A pause is expected, but the hiking cycle isn't over

The Federal Reserve is widely expected to hold rates on Wednesday, six days before the midterm elections, but the bigger question is what comes after. The coverage points the same way: this is a pause, not a turn. Markets are already pricing the next hike, oil is still carrying a war premium of about $20 a barrel, and bitcoin is moving almost entirely with the macro news.

Policymakers are expected to keep the federal funds rate in the 3.75%–4.00% range at the end of their two-day meeting. They raised it by a quarter point in September, the first increase since 2023.1213 CME Group's FedWatch tool put the chance of no change at about 90%, and the decision was due at 2 p.m. Eastern.12 That consensus formed fast. Kiplinger's tracking showed the odds of a hold were only about 36% a month earlier, rose to roughly 85% a week before the meeting, and reached about 90% at the start of the meeting.19

What this means for policy is just as consistent. Futures put the chance of higher rates by December at about 86%.16 One forecasting firm expects three more quarter-point hikes, which matches market pricing of one increase per quarter through June 2027.12 TS Lombard's Dario Perkins framed it plainly: the question is no longer whether the Fed hikes again, but how many times.15

The inflation picture argues against waiting

The hard part for Fed Chair Kevin Warsh is that the data don't obviously support a pause. Consumer inflation rose from 3.4% in August to 3.7% in September.11 That is close to the three-year high set in May.13 Early estimates of the Fed's preferred measure, the PCE price index, show both headline and core readings rising in September. Both remain at or above 3% on an annualized basis, with little progress lately.12 The 2% target has now been missed for nearly six years.14

The causes have also changed. Economists and many Fed officials no longer blame only the energy shock from the Iran war and leftover tariff effects. They also point to heavy demand from the AI boom and solid consumer spending.1215 That matters because the Fed considers demand-driven inflation more within its reach, which could lead some officials to vote against a hold.12 Warsh made a similar case in September. He said the Fed can't control the price of oil or groceries, but it can stop those price jumps from spreading through the wider economy.11

Not everyone accepts the case for pausing. Wendy Edelberg of the Brookings Institution expects a hold but questioned the reasoning. She argued that if a hike made sense in September, the economic case for one now is just as strong.13 Former Cleveland Fed President Loretta Mester also said the Fed should act while the job market is stable and inflation is clearly too high.13 Unemployment has stayed around 4.2% for the past year.13 Former Fed Vice Chair Alan Blinder put part of the blame on Warsh himself, saying his dislike of forward guidance has left the Fed with no good options.17

Supporters of a pause point to Treasury yields. Fed officials have signaled they want to see how the recent sharp rise in yields affects the economy. Higher yields raise borrowing costs on their own, without a rate hike.16 The 10-year yield was steady near 4.99% on Tuesday.17 On this view, the bond market is already doing part of the Fed's work, so a pause is a reasonable hold-and-check rather than a retreat. Russell Investments' Paul Eitelman called it a "hawkish hold" ahead of a final hike at year-end.19

The election question

The Fed says the election calendar plays no role in its decisions, but it is clearly a factor in how the decision will be read. NYU Stern's Nicholas Economides said being this close to the vote makes drastic action unlikely, partly because the economy wouldn't have time to adjust before Election Day anyway.11 History mostly supports that. A CME analysis found the Fed held rates in the months before 54% of midterms from 1974 to 2022. The four times it hiked close to a midterm, rising inflation was the reason each time.16 CNN reported a different pattern: outside the pandemic, the Fed changed rates within two months of Election Day in four of the five most recent election years.20

The politics are messy for both sides. President Donald Trump picked Warsh after years of attacking the Fed for not cutting rates. Warsh's first big move was a hike, which many saw as a sign of independence.20 Trump has said rates should be 1% or lower.11 EY-Parthenon's Gregory Daco summed up the bind: a hike can't look like an attack on the administration, and a hold can't look like a favor to it.20 Kiplinger's in-house economist was more direct. He said that without the election, recent inflation would probably have justified a hike this week, and he expects one on December 9.19

My read is that the timing explains the pause, while the data explain why it will be short. Warsh's job at his press conference is to make that clear without saying it outright.

Oil: a war premium the Fed can't ignore

The oil market shows why the Fed can't call energy a one-off shock. Brent rose about 0.9% to $114.87 on Wednesday and WTI gained about 1.6% to $101.49. Two things drove the move: more Houthi attacks on Saudi Arabia and the chance of a new US campaign against Iran.21 Prices had been up more than 2% earlier in the session, after falling about 1.6% on Tuesday on hopes for diplomacy.21 The Houthis said they had hit Saudi Arabia's Ras Tanura refinery, which processes 550,000 barrels a day, though the kingdom has not confirmed the strike.2325

The biggest driver is the election calendar. The Wall Street Journal reported that Washington has told several Gulf states to prepare for a possible renewed military campaign against Iran after the November 3 vote.21 Trump has said he has a "decision to make" on Iran.21 ING strategists said a post-election escalation now looks more likely than their earlier expectation of calm. They called their $80 Brent forecast for the fourth quarter unreachable.29 UBS raised its outlook and now expects Brent to stay near $110 through year-end, citing tight supply, falling inventories and record freight costs.21

Analysts agree there is a large risk premium in prices but differ on how big it is and how long it will last. Gallo Partners' Michael Alfaro put it at about $20 a barrel. He also warned that prices above $120 would start cutting demand.24 ING suggested that if the election passes without new strikes, the premium could start to shrink.25 Supply buffers are thin. The US Strategic Petroleum Reserve is at its lowest level since 1982.24 UBS noted that pledged emergency releases from reserves have largely been completed.21

For the Fed, the link is direct. Oil at these prices makes it more likely that energy costs spread into other prices, which is exactly what Warsh has promised to prevent. The Bank of Canada's governor has raised the same concern.17

Bitcoin: waiting on the Fed

Crypto shows how much of the market is just waiting. Bitcoin rose about 2% to just above $81,000 in Asian trading on Wednesday, recovering from Monday's drop below $80,000.5 By late morning in the US, it had given back about $1,000 of that gain and was back near $80,600.5 The token is down for the week, the month and the year. Recent trading has been tight, which looks more like caution than panic.9

The flow data are mixed but leaning positive. US spot bitcoin ETFs took in $175.99 million on Tuesday, a second straight day of inflows.8 Santiment reported a net 14,942 BTC leaving exchanges, the largest daily outflow in five weeks. Coins leaving exchanges usually means less immediate selling pressure.3 Galaxy's Alex Thorn argued the bear market probably ended in June, when bitcoin fell below $58,000.5 On the other side, K33 Research pointed to low market participation and warned that a jump in volatility may be coming.8 More than $11 billion in options expiring on Deribit on Friday adds to that risk.4

Most crypto analysts agree a hold is already priced in, so Warsh's tone matters more than the decision itself.2 One outlook said a hold paired with dovish comments could force short sellers out and push bitcoin toward $88,000. A surprise hike could send it below $70,000.1 That second scenario seems unlikely given the odds. The more realistic risk is a hawkish hold that confirms a December hike, at a time when high oil prices are already raising inflation worries and holding back risk-taking.8

What to watch

The rate decision itself is the least important part of Wednesday. What matters more is whether any officials vote against it, how Warsh explains pausing while inflation speeds up, and whether oil holds near $115 into an election that could restart the Iran conflict. Third-quarter GDP and PCE data come out Thursday.4 They will test whether markets are right to price in a steady run of hikes. Today's hold is likely only a pause before that.