Ben Emons Says Inflation, Not Midterms, Will Decide Whether Fed Hikes

Ben Emons, founder of FedWatch Advisors, believes markets are underpricing a Fed rate increase at the October meeting. He expects one or two further hikes and says inflation pressure continues to build.

Traders are mostly positioned for no change at the Fed's Oct. 27-28 gathering, after the central bank lifted rates to 3.75%-4.00% in September. On Friday, Emons told CNBC's Fast Money that Fed officials' remarks and September's 3.7% inflation reading point to elevated odds of a move.

Are Midterms Really a Factor for a Fed Hike?

The midterm elections are not a factor this Fed is taking into account, according to Emons. He argues that policymakers want real-time data rather than lagging statistics, and that takes time.

Emons said Fed Chair Kevin Warsh told the International Monetary Fund's managing director that the central bank is seeking additional on-the-ground data.

Emons interprets Warsh's failure to commit as its own signal and flagged synchronized tightening around the world.

Still, he concedes, an October hold remains possible.

“at the end of the day, they’re going to have to do more”

Ben Emons, on CNBC.

A host remarked that a December rate increase is broadly anticipated.

Emons adds that traders may also be waiting on the Nov. 3 results, as a Democratic Congress could alter the AI infrastructure buildout.

Can the Fed Do Much About Energy-Driven Inflation?

According to Emons, pipeline pressure in producer prices will pass through to consumers. However, one host said energy drove half of September's 0.6% rise in consumer prices, then asked what the Fed can do about it.

Data from the Bureau of Labor Statistics (BLS) show gasoline by itself accounted for more than half of the monthly increase.

Energy costs tend to ease as the dollar strengthens, Emons replied. So higher rates are one route to that outcome.

Gold prices slid last week after consumer, producer and import price reports all beat expectations.

For now, Emons does not describe the situation as stagflation, since unemployment is not on the rise.

He says neocloud stocks — AI-focused cloud providers — could be flashing slowdown signs, a blend he calls “stallflation.”

Chip stocks, meanwhile, registered an eighth straight session of losses, pressured by AI skepticism and rate worries.

Data centers have been underpinning service-sector employment in recent months, Emons notes. If that support fades alongside energy-driven inflation, some version of stagflation would follow, he says.