Three Things to Watch For on Fed Wednesday

Barchart · 2d ago

While most of the chatter in financial media is about how the Fed will make a 25-basis point rate hike Wednesday afternoon, the market is telling us it won't happen until October.
The fact the move could come before US mid-term elections would make things more interesting, and likely more uncomfortable for Fed Chairman Warsh.
Additionally, the Fed fund futures forward curve is showing two rate hikes before the end of 2026, and with no meeting scheduled for November, the outline is clear, much to the chagrin of the White House.

We have reached another Federal Open Market Committee Wednesday, meaning Fed Chairman Warsh (aka Howdy Doody^[i]) will announce the FOMC’s next move on interest rates at 14:00 (ET). For those interested, this would be 15:00 Caracas time (after all, the US president is also the self-proclaimed president of Venezuela) and 22:00 Baghdad and Moscow time. As we move into the day, there are three things I’ll be keeping an eye on.

First, based on Fed fund futures, the Fed will have voted to keep rates unchanged, between 3.5% and 3.75%, another month. Let’s look at what Wednesday’s pre-dawn numbers tell us about expected rates (1% - futures price):

September (ZQU26): 96.2625 = 3.7375%, just below the high end of the existing range
October (ZQV26): 96.13 = 3.87%, above the high end of the existing range indicating the Fed will raise rates by 25-basis points BEFORE US mid-term elections in early November. This would raise the range to between 3.75% and 4.0%.
December (ZQZ26): 95.895 = 4.105%, above what is expected to be the range following the October meeting meaning the Fed could hike another 25-basis points to close out 2026. This would put the year-end range between 4.0% and 4.25%.

Recall this is similar to what we saw heading into the July meeting, though at that time the two cuts were supposed to occur this month and December. So, we know the forward curve can change. However, a look at the daily chart for the October futures contract and we see it is getting comfortable below 96.25, making the rate hike next month that much more likely. Why wouldn’t the Fed just announce a 50-basis point hike in October? Because that would be the logical thing to do to try to get ahead of exploding inflation. I’ll talk about why this isn’t even a consideration in a moment.

Second, the spotlight will burn bright on what Chairman Warsh says in his comments following the announcement. Within the three things I’m watching today, there are three things I’m expecting with the Chairman’s comments:

Voting members will be more heavily split than what was reported in July when a quarter of the members wanted a rate hike.
There will be a great deal of discussion on skyrocketing inflation, most notably in fuel, and the ripple effects it should have on the US economy. Along that same line, “concern” will be expressed for US employment.
The Chairman will do his best to dance around the root cause of the US (world?) problems, not discussing his handler’s War on Iran and only mentioning in passing the effects of US’ disastrous one-word trade policy (“tariffs”, in case you were wondering) and inflamed Trade War with Canada since the previous Fed meeting.

Third, keeping in mind the US president is famous for two things: Going bankrupt in the hotel and casino industry – one designed for the house to make unlimited amounts of money – a total of six times and his role as a “reality television” personality where all he had to do was repeat one line. We also know the US president wants interest rates dropped, preferably down to 0%. Earlier this month, the US Vice President said the Fed needed to do the administration a favor and lower rates this time around. It is obvious who told him to say such a thing. Mr. Warsh won't announce a rate cut today, but he most likely won't announce a rate hike either. But he will, sooner rather than later. Meaning that while maybe not today, at some point either immediately before or directly after the mid-term election the US president could say that line to Mr. Warsh, telling him, “You’re fired”.

^[i] Famed puppet

On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.