Fed Rate Decision: Hold Expected Before Midterms as Oil Tops $100

A pause that few think will last

The Federal Reserve's last policy meeting before the November 3 midterm elections is widely expected to end with no change in rates. The vote also looks unlikely to settle much. Policymakers are expected to keep the federal funds target range at 3.75% to 4%, where it has been since September. That month the Fed raised rates for the first time in three years.28 The statement is due at 2 p.m. Eastern on Wednesday, and Chair Kevin Warsh is scheduled to hold a news conference at 2:30 p.m.2

Markets and economists agree on what comes next. On the eve of the meeting, the CME FedWatch tool put the chance of a hold at 90.6%, up from 35.8% a month earlier.1 It gave roughly 75% odds of a quarter-point hike in December.12 In a Reuters survey of 100 economists, 94 expected rates to stay put this month, and every one of them predicted a December increase.2

Nearly all of the preview coverage agrees with this account. One outlet published a report saying the Fed had held rates at 5.25% to 5.5%.5 That range does not match the 3.75%-to-4% range cited across the rest of the reporting, so readers should treat it carefully.138

The argument in this piece is that the October pause is about timing, not a change of direction. Treating it as a dovish signal would be a mistake.

The case against waiting

The awkward part for Warsh is that the data argue for acting now. September consumer prices rose 0.6% for the month and 3.7% from a year earlier, well above the Fed's 2% target.1 AFP noted that the figure is close to the three-year high set in May.3 The New York Times described the run of inflation data since the September hike as unequivocally disappointing, and pointed out that the 2% target has now been missed for nearly six years.10

The labor market is not giving officials a reason to hold off either. Unemployment has stayed around 4.2% for the past year.3 Hiring did slow sharply in September, when the economy added only 29,000 jobs.24 Some well-known Fed watchers find the reasoning hard to follow. Brookings senior fellow Wendy Edelberg said a September hike implies an equally strong case for another one now, and that she does not fully see the logic of waiting.3 Former Cleveland Fed president Loretta Mester said the economics support another increase. She also questioned whether a "timely" return to 2% differs much from simply drifting toward it.9

The Fed's official line is that hikes don't have to come at back-to-back meetings. Governor Christopher Waller said they only need to arrive within an acceptable period of time.6 Earlier this month Warsh said conditions had broadly matched what policymakers expected after the September move, which fed speculation about a pause.4

Outside the Fed, the explanation most commentators reach for is the calendar. Navy Federal Credit Union chief economist Heather Long said the bar for hiking within a week of an election is very high, and that the Fed is likely to wait until December.1 NYU Stern economist Nicholas Economides said the central bank tends to avoid radical action before a vote.6 Fed officials, Mester among them, say politics plays no part in their deliberations.3 Even so, the coverage overall suggests the election shaped the timing of the next hike more than whether it happens.

Warsh's credibility test

That leaves Warsh with a messaging problem. In an August speech he promised to bring inflation back to 2% "at sufficient speed," and holding rates while inflation rises sits uneasily with that promise.8 Reuters noted that the Fed's policy statement has become much shorter since Warsh took over in late May, so most of the explaining will happen at his news conference.8

Derek Tang of Monetary Policy Analytics expects Warsh to present the skip as part of a committee that is still determined to prove itself on inflation. His firm expects three more quarter-point hikes over the coming meetings.8 That fits market pricing of roughly quarterly increases through June 2027.8 The Fed's September projections pointed the same way: 12 of 18 participants saw one more hike this year, and four saw room for more.2

The focus has moved from whether the Fed hikes again to how far it goes. TS Lombard's Dario Perkins put it this way: the question is how many more hikes follow, and the Fed may have to keep going "if the AI bubble doesn't burst."8 Long expects a couple more increases in 2027, with mortgage rates above 7% for at least a year.1

Politics hangs over all of this. President Trump criticized the September hike and has said rates should be 1% or lower.5 AFP reported that the White House has renewed its effort to remove Governor Lisa Cook, despite an earlier Supreme Court ruling against it.3

Oil is the swing factor

Coverage of the Fed and the oil market increasingly tells the same story. The U.S. war with Iran, launched in late February, has driven up energy prices and domestic inflation, along with tariffs and the AI data-center boom.3 Gasoline prices rose 9.1% in September and accounted for more than half of that month's overall CPI increase.22

The oil market has been volatile heading into the meeting. Brent settled at $117.38 on October 23 after a weekly gain of nearly 7%. Analysts warned that disruption around the Strait of Hormuz could push it toward $120.27 Commerzbank analysts called the Middle East the main geopolitical risk.21 Prices then pulled back early this week. On October 26, Brent fell to around $111 after Trump signaled that no immediate military action against Iran was planned.25 By Tuesday, West Texas Intermediate was trading just under $100 and Brent near $109.22 Business Insider reported both benchmarks up about 1.7% to 1.8% on Wednesday morning, with U.S. crude near $101 and Brent near $111.29

Reuters said Brent was around $114, about 20% above its level at the start of September, with diesel prices close to record highs. It identified diesel as a driver of inflation spreading across the economy.8 Kiplinger's live coverage highlighted a less obvious shift. Crude has recently been rising while gasoline and distillate prices have fallen. BCA Research expects that gap to close, warning that refined-product prices are unlikely to stay insulated now that the cushion from Chinese fuel exports has probably peaked.22 If that happens, the October CPI cooling Long expects could be brief.1

The next risk is already scheduled. Indian outlets reported that the U.S. and Israel had drawn up plans to strike Iranian energy infrastructure, including sites near Natanz, after the November 3 midterms, and that Iran had warned of consequences.27 USA Today noted that the pause also lets the Fed see whether the election changes the timeline of the war.2 So the Fed is not only waiting out a vote. It is waiting to see whether a new oil shock follows it.

Other central banks are not waiting. The Bank of Canada raised its key rate to 2.5% on Wednesday to contain the oil-price surge caused by the Iran war.3 That makes the Fed's patience look more like a choice than a necessity.

Bitcoin trades on hold-and-hike pricing

Crypto markets have taken their cue from the same mix of oil and rate expectations. Bitcoin fell as low as $79,146 on October 24, its weakest level in over a month. More than $810 million in leveraged positions were liquidated over 24 hours, most of them bullish bets.20 At that point the coin was on track for its first monthly decline since June.20 Spot bitcoin ETFs lost about $773.5 million over two sessions on October 22 and 23.14 They then took in $110.3 million on October 26.17

Bitcoin has edged back up ahead of the decision. It rose about 2% to just above $81,000 during Asian trading on Wednesday.12 It then gave back roughly $1,000, slipping to about $80,600.12 Santiment recorded net exchange outflows of 14,942 BTC, the largest in five weeks. Analysts generally read that as reduced near-term selling pressure.17 Over longer periods the picture is still weak: as of Tuesday, bitcoin was down about 31% from a year earlier.16

Crypto traders have adopted the same framework as bond traders. A hold is almost fully priced in, so price moves will depend on Warsh's tone and on Thursday's GDP and PCE inflation releases.1615 Bitcoin Magazine suggested a hold could keep the coin roughly between $80,000 and $88,000.19 FXStreet linked bitcoin's stall near $80,000 directly to Middle East tensions lifting oil prices and reducing appetite for risk.21 More than $11 billion in bitcoin options also expire on Deribit on Friday, which could magnify any reaction to the Fed's guidance.15

What to watch

A hold on Wednesday is close to certain. The real signal will be how firmly Warsh commits to December. He can present the pause as a short wait for data, as Tang expects.8 Or he can leave room for a longer wait, which some viewed as the dovish scenario. Thursday's PCE report will test either message right away. Reuters noted that enough of its components are already known for officials to expect inflation to stay at 3% or higher.8

Even with a clear message from Warsh, the bigger factor is outside the Fed's control. If plans to strike Iranian energy infrastructure after the election go ahead, oil could approach $120 again.27 That would make December's hike look small, and markets would likely price more tightening into 2027.