The Odds of an Oct. 28 Fed Rate Hike Are Soaring, and President Donald Trump Is, in Part, to Blame
Key Points
Fed Chair Kevin Warsh vowed to lead a reform-oriented central bank and just kicked off the fourth rate-hiking cycle of the century.
Several of President Trump’s policies are directly contributing to persistently elevated inflation.
While the AI revolution is lifting the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite to new heights, it’s also boosting consumer prices.
Long-duration Treasury bond yields are at a 19-year high, signaling the expectation of additional FOMC rate hikes.
Four months ago, when Kevin Warsh was sworn in as the new Fed chair, he vowed to lead a reform-oriented central bank. Thus far, he's stuck to his word by removing forward-looking guidance, commissioning five task forces to aid in the Fed's conduct of monetary policy, and overseeing the start of only the fourth rate-hiking cycle in the 21st century.
Wall Street's initial reaction to the Federal Open Market Committee (FOMC) raising the federal funds target rate by 25 basis points on Sept. 16 to 3.75%-4.00% was melancholy, with the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC) all declining. Investors likely realize that interest rate hikes are rarely, if ever, a one-time event.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
Two of President Trump's policies are directly affecting consumer prices. Image source: Official White House Photo by Joyce N. Boghosian.
The odds of an October rate hike are skyrocketing
On Aug. 19, the CME Group's (NASDAQ:CME) FedWatch Tool, which uses 30-day Fed Funds futures prices to track the probability of rate hikes/cuts at future FOMC meetings, projected just a 6.6% chance that the federal funds target rate would be 4.00%-4.25% by Oct. 28. As of Sept. 18, the odds of the FOMC lifting interest rates another quarter point on Oct. 28 are 57.6%!
The soaring odds of back-to-back rate hikes didn't happen by accident. They reflect a confluence of factors, some of which trace directly back to President Donald Trump.
Central bank watchers now overwhelmingly expect not only a Fed rate increase this week, but a second hike before the end of the year pic.twitter.com/tG3VzyNA7x
— Nick Timiraos (@NickTimiraos) September 15, 2026
1. Tariffs
Though it's playing a relatively modest role in persistently elevated inflation, President Trump's tariff and trade policy is lifting prices.
In July, the Trump administration announced sweeping new tariffs, ranging from 10% to 12.5%, on imports from over 80 countries. Importing unfinished goods, such as steel, and imposing duties on them can increase domestic manufacturing costs, which are then passed on to consumers.
2. The Iran war
The Trump-led Iran war is, arguably, the primary source of elevated inflation at present. After military action commenced against Iran on Feb. 28, the latter shut down the Strait of Hormuz to virtually all commercial traffic. This essentially halted the flow of a fifth of the world's crude oil supply, sending fuel prices soaring.
BREAKING: US diesel prices hit another fresh record high of $6.45/gallon, now up 40 cents over the last week.
— The Kobeissi Letter (@KobeissiLetter) September 18, 2026
This puts diesel prices up +$1.00/gallon over the last month and +84% since January.
In California, the average price of diesel is up to $8.40/gallon, the highest ever…
Though crude oil prices briefly retraced in June as peace talks between the U.S. and Iran ramped up, fuel prices are once again climbing. Diesel prices reached an all-time high last week, signaling that energy commodity-driven inflationary pressure is picking up, not slowing down.
3. AI infrastructure build-out
But the rapid rise in inflation isn't entirely traced back to President Trump. The artificial intelligence (AI) data center build-out is playing a key role.
On the one hand, demand for AI hardware is off the charts, and persistent supply shortages of graphics processing units and memory have sent chip prices into the stratosphere. Select AI hardware companies have seen their gross margin go parabolic, providing quite the boost to the Dow, S&P 500, and Nasdaq Composite.
However, significantly higher price points for chips and memory are also translating into higher prices for consumers.
Image source: Getty Images.
4. The bond market wants action
Lastly, long-duration Treasury bond yields have leaped to their highest level since the financial crisis.
Seeing the 10- and 30-year yield hit 19-year highs signals that bond traders demand better compensation amid elevated inflation and U.S. total debt surpassing $40 trillion in mid-August. Bond traders often do a better job than equity investors of removing emotion from an investment – and they're clearly indicating, via long-duration yields, they want additional action from the FOMC.
Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CME Group. The Motley Fool has a disclosure policy.