FedWatch Advisors founder Ben Emons warns that financial markets are significantly underpricing a potential Federal Reserve interest rate hike at the upcoming Oct. 27-28 meeting. Despite CME FedWatch data assigning just a 16% probability to a rate increase following September's shift to 3.75%-4.00%, Emons projects one or two additional hikes as 3.7% September inflation pressure continues to build.
Key Takeaways
- Ben Emons expects 1 to 2 more Fed rate hikes due to persistent 3.7% inflation.
- CME FedWatch prices in only a 16% probability of a rate hike at the Oct. 27-28 FOMC meeting.
- Gasoline accounted for more than half of September's 0.6% monthly consumer price surge.
- Semiconductor chip stocks logged an eight-day losing streak amid rate fears and AI buildout doubts.
Fed Prioritizes On-The-Ground Data Over Midterm Elections
Speaking on CNBC's Fast Money on Friday, Ben Emons asserted that the upcoming Nov. 3 midterm elections are not a factor in the Federal Reserve's policy decisions. According to Emons, Fed Chair Kevin Warsh emphasized a demand for real-time economic figures during discussions with the managing director of the International Monetary Fund (IMF). Emons interprets Warsh's refusal to commit to a rate pause as a signal in itself, especially alongside synchronized global monetary tightening.
"at the end of the day, they're going to have to do more," Emons noted regarding central bank intervention. While market participants are watching election results for clues on how a Democratic Congress might adjust AI infrastructure buildout plans, policymakers remain focused on stubborn producer and consumer price indices. Macroeconomic uncertainty has already reverberated through tech equity markets, echoing recent events where Wall Street was gripped by AI stock selloffs.
Energy Inflation, Stallflation, and Risk Asset Impact
Addressing the drivers of current price growth, Emons cited Bureau of Labor Statistics (BLS) data showing gasoline alone accounted for more than half of September's 0.6% consumer price increase. He explained that higher policy rates strengthen the U.S. dollar, which typically depresses energy prices over time. Meanwhile, precious metals faced downward pressure as consumer, producer, and import price reports all beat expectations, reminiscent of when gold prices dropped following hot U.S. inflation data.
Emons does not characterize the present environment as traditional stagflation because unemployment has not risen. Instead, he defined the current dynamic as "stallflation," pointing to AI-focused neocloud providers signaling a top-line growth slowdown. Semiconductor equities reflected this anxiety through an eight-day losing streak. Emons cautioned that if data centers cease generating service-sector job gains while energy inflation persists, full stagflation could follow.
Why It Matters
An unexpected Federal Reserve rate hike in October would severely tighten global liquidity, putting downside pressure on crypto asset valuations, risk equities, and tech sectors. If energy costs keep elevated inflation readings intact, central banks will maintain higher interest rates for longer, constraining speculative capital flows. Investors should closely monitor upcoming BLS reports and corporate AI expenditure trends, as persistent energy costs could turn Emons' "stallflation" scenario into formal stagflation.
