Fed likely to wait out the midterms before hiking before year-end: deVere CEO
The Federal Reserve is likely to hold its nerve until Americans have voted in the midterms, but inflation running at a 7% annualised pace makes another rate rise before the end of the year increasingly probable, warns the CEO of deVere Group, one of the world’s largest independent financial advisory organisations.
The comments from Nigel Green come as fresh figures show US consumer prices climbed 3.7% in the 12 months to September, a notch above the 3.6% economists had pencilled in, after jumping 0.6% in a single month.
He says: “Prices rising 0.6% in a month works out at more than 7% over a year if it carries on, and the Fed’s target is 2%.
“The gap between those two numbers is going to shape every decision the Fed makes between now and Christmas.
“The annual number shows what’s already happened. September’s monthly jump is a better guide to what’s coming, and it suggests prices are picking up speed.”
Underlying inflation is firming too. Core prices, which strip out food and energy, rose 2.6% on the year, above forecasts, just weeks after the Fed lifted its target range to 3.75% to 4.00%.
Energy is driving much of the surge, with petrol averaging $4.34 a gallon against $3.08 a year ago.
“Energy is where this started, but it’s unlikely to stay there,” notes Nigel Green.
“Fuel costs feed into delivery charges, food prices and airfares, and businesses pass those on. Once core inflation starts creeping up as well, it’s a sign it’s spreading.”
Fed policymakers meet on October 27 and 28, less than a week before the November 3 midterm elections. Minutes from September’s meeting show most officials already see one more increase as appropriate before year-end, and the final meeting of 2026 falls on December 8 and 9.
The deVere CEO believes the Fed will opt to wait in October.
“A hike days before the midterms would land in the middle of a campaign, and nobody on the committee wants to be accused of tipping the scales at the ballot box.
“The weak jobs data gives them cover to hold, with only 29,000 jobs added in September.
“December looks very different. With the vote out of the way and inflation still climbing, the case for another rise becomes very hard to resist. My expectation is the Fed moves again before the year is out.”
Fed chair Kevin Warsh faces a delicate balancing act. Officials’ own projections already point to rates finishing 2026 higher than they are today.
“Markets have spent much of this year hoping cuts were around the corner. September’s data should put that conversation firmly on ice,” says Nigel Green.
“The debate is shifting to how many more increases might be needed and how long rates stay up once they get there. This isn’t going away.
“Energy prices remain high, inflation is broadening out, and the Fed knows its credibility is on the line.”
The consequences are likely to reach far beyond the US. Higher American rates ripple through global borrowing costs, currencies and asset prices, from mortgage deals to company valuations.
He concludes: “Once the midterms are in the rear-view mirror, the Fed is likely to face an inflation problem it can no longer put off.
“With prices climbing at a 7% clip and energy still pushing everything higher, the pressure is building month by month.
“A December hike looks increasingly likely, and it may well not be the last.”