FedWatch Advisors founder Ben Emons says markets are underpricing a Fed hike at the October meeting. He expects one or two more hikes, arguing inflation pressure is still building.

Markets lean toward a hold at the Oct. 27-28 meeting, after the Federal Reserve raised rates to 3.75%-4.00% in September. Emons told CNBC’s Fast Money on Friday that Fed speakers and September’s 3.7% inflation reading imply higher odds.

Do the Midterms Really Matter to a Fed Hike?

The midterm elections are not a consideration for this Fed, Emons says. Policymakers want real-time data over lagging figures, he argues, and that takes time.

There is only a 16% chance of a hike in the upcoming meeting. Source: CME FedWatch

Fed Chair Kevin Warsh told the International Monetary Fund’s managing director the Fed wants more on-the-ground data, Emons said.

Emons reads Warsh’s refusal to commit as a signal in itself, and flagged synchronized global tightening.

Still, a hold in October remains possible, he concedes.

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

Ben Emons, CNBC

A host noted a December hike is widely expected.

Traders may also await the Nov. 3 results, Emons adds, since a Democratic Congress could change the AI infrastructure buildout.

Can the Fed Do Anything About Energy-Driven Inflation?

Pipeline pressure in producer prices will reach consumers, Emons says. However, a host said energy drove half of September’s 0.6% consumer price rise, then asked what the Fed can do.

Bureau of Labor Statistics (BLS) data show gasoline alone accounted for more than half of the monthly rise.

Energy prices tend to fall when the dollar strengthens, Emons replied. Higher rates are therefore one way to get there.

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

For now, Emons does not call the setup stagflation, since unemployment is not rising.

He says neocloud stocks, which are AI-focused cloud providers, may be signaling a slowdown, a mix he calls “stallflation.”

Meanwhile, chip stocks logged an eight-day losing streak as AI doubts and rate fears weighed.

Emons says data centers have supported service-sector jobs in recent months. If that changes alongside energy-driven inflation, he says, some form of stagflation follows.

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