Hold Today, Hike in December: Why the Fed Will Keep the Door Open

• Futures put the odds of a Fed hold today near 90%.

• Hiring is stuck in low gear, with September payrolls up just 29,000.

• Inflation is firm enough to keep a December rate hike on the table.

The Fed sits out today. It just won't close the door on December.

When the Federal Open Market Committee ("FOMC") wraps up its two-day meeting this afternoon, I expect it to hold the fed funds rate at 3.75% to 4%. Wall Street agrees. Futures put the odds of a hold near 90%, and the odds of a quarter-point hike on December 9 around 80%. The real debate is what comes after that. Traders have started betting on more hikes in 2027.

Here's the twist. Chair Kevin Warsh has done away with formal forward guidance, so the tell is in the tone. Look for the hawkish language from September's statement to stay intact: "Inflation remains elevated" and "The Committee will deliver price stability." That's the Fed's way of keeping a December hike squarely on the table.

My take? Hiring is too weak to justify a hike now, and inflation is too firm to allow a cut. So, the Fed waits, moves once more in December, and possibly March, then settles in for a long pause, not the string of 2027 hikes Wall Street is pricing. That outlook should underpin a steady rally in the S&P 500 Index.

But don't take my word for it, let's look at what the data's telling us...

What Wall Street Is Pricing

Fed officials have made it clear there's no rush. New York Fed President John Williams and Board Member Christopher Waller have said there's "no need for urgency," while Vice Chair Philip Jefferson said the Fed may need more time before its next move.

Futures line up with that, at least up front. Bond market speculators have priced an October hold and a December hike since mid-September. What changed this month was the back end. The market added two more hikes by June 2027, lifting the expected midpoint of the fed funds range to roughly 4.625%.

That's Wall Street getting ahead of itself, as usual. I'll show you why that back end is too far. But first, here's why the Fed can afford to wait today.

Hiring Stuck in Low Gear

Employers added just 29,000 jobs in September, and July was revised to a loss of 10,000. Year-to-date, they've added 612,000 jobs, versus a 2.1 million average since 2015. ADP's count of 90,000 marked the 16th straight month of below-average hiring.

Openings now roughly match the number of unemployed workers, down from a five-year average of 1.3 per job seeker. Quits are stuck at 1.9%, matching the lowest level outside the pandemic. A looser job market takes wage pressure off the table. And with participation near 20-year lows, a 29,000 print isn't an alarm bell. It's just weak enough to keep a hike off the table today.

Why December Stays Live

Now for the other side of the ledger. September CPI rose 3.7% from a year earlier, up from 3.4% in August, with a 9.1% jump in gasoline doing most of the damage. Core prices rose 0.3% on the month.

Consumers feel it. The New York Fed's survey shows households expect prices to rise 3.9% over the next year, up from 3.6%. But the five-year outlook held at 3.0%. The short end is moving, the long end isn't, meaning households trust the Fed will bring inflation back under control.

Paychecks are the bigger worry. The Atlanta Fed's Wage Growth Tracker rose 3.9% in September. With CPI at 3.7%, wages are winning by just 20 basis points, down from 70 in August.

That cushion is getting thin. From 2021 through early 2023, prices outran paychecks, and the Fed hiked aggressively to cool demand. If the gap flips again, a December hike goes from likely to a lock. That's exactly why the Fed won't take it off the table today.

Why the Hikes Could Stop in March

And here's where it gets interesting. On an unadjusted basis, consumer prices jumped 1.0% in March, 0.9% in April, and 0.6% in May. Next spring, those months drop out of the year-over-year math. The catch? Last fall's flat-to-negative months roll off first. At a steady 0.2% a month, headline inflation could top 4% by year-end. Don't panic when it does. That's math, not a new inflation wave. Once the spring months fall away, the annual rate drops to roughly 2% by May.

Timing is everything here. At the March meeting, headline inflation will still look hot, which is why a second hike is possible. By June, the spring spike has rolled off, and the case for more is gone. That's when those 2027 hike bets should start to fade. It's hard to justify more tightening with inflation falling by more than a point in three months.

The Payoff

So, the path looks like this: a hold today, one more hike, maybe two, then a long pause. That's less tightening than Wall Street is pricing, and an earlier end to the cycle.

And that's what matters for stocks. As the 2027 hike bets get walked back, pressure on bond yields should ease. Lower yields and clearer rate expectations, combined with resilient corporate earnings, give investors room to pay up for growth.

I'll be watching whether long-term expectations stay anchored, whether paychecks stay ahead of prices, and whether the monthly pace cools into spring. Right now, those signals are yellow, not red. Two more hikes, then a long pause. Growing paychecks and fading rate fears. That's a recipe for a steady grind higher in the S&P 500.

Five Stories Moving the Market:

The U.S. has told several Gulf Arab countries to be prepared for a short, intense military campaign after the U.S. midterm elections; the communications through diplomatic and military channels are among a growing number of indications that the U.S. and Israel are readying to launch a new round of heavy combat operations against Iran – WSJ. (Why you should care – concerns around new strikes against Iran could send oil higher, boost demand for safe0-haven assets like Treasuries, and weigh on stocks in the near term)

SK Hynix unveiled plans to return about $45 billion more to shareholders after operating profit surged a stronger-than-expected seven-fold, reflecting the resilience of an AI infrastructure rollout that’s propelling memory chip demand – Bloomberg. (Why you should care – the company expects memory demand to outstrip supply through at least 2030, which supports pricing power for chipmakers and signals AI infrastructure spending isn’t slowing down)

Oracle said it’s expanding its cloud AI chip deals with Nvidia while also diversifying to add offerings ​from Nvidia rivals such as Alphabet's Google and Cerebras Systems; Oracle and ‌Nvidia said the cloud firm will expand to "multi-gigawatt scale" with Nvidia's newest generation of "Vera Rubin" AI servers – Reuters. (Why you should care – Nvidia CEO Jensen Huang has said Vera Rubin represents about $40 billion of revenue opportunity for Nvidia per gigawatt of AI capacity)

OpenAI intends to buy artificial intelligence computing chips from Alphabet’s Google, part of broader efforts by the ChatGPT maker to build out its AI infrastructure, according to The Information – Bloomberg. (Why you should care – Google’s chips are emerging as a real alternative to Nvidia’s, a potential new revenue stream for Alphabet ahead of its earnings report today, and another sign AI compute demand remains strong)

New orders for key U.S.-manufactured capital goods increased in September and shipments of these products surged, suggesting business spending on equipment maintained a robust growth pace in the third quarter, though ​doubts are mounting over the huge cost of building out AI infrastructure – Reuters. (Why you should care - equipment spending is still running at a double-digit pace, a tailwind for AI suppliers’ earnings, but heavy borrowing by tech firms to fund it is a risk to watch if investors start questioning the payoff)

Economic Calendar:

Earnings: GOOGL, MSFT, GEV, KLAC, APH, NOW, TMUS, FTNT, ADP, PSX, EQIX, VRT, ORLY, AEP, BSX, AON, TEL, GRMN, EBAY, HONA, F, CVNA, ODFL, BIIB, CMG, GEHC, RJF, OTIS, AWK, FLEX, LH, VICI, SW, NI, FTV, IP, IEX, CHRW, INVH, TYL, EG, MAS, GEN, MAA, LII, GNRC, ALGN, MGM

Germany - GfK Consumer Climate for November (3 a.m.)

France - Jobseekers for September (7 a.m.)

U.S. - MBA Mortgage Applications (7 a.m.)

U.K. - Autumn Forecast Statement (8:30 a.m.)

U.S. - Advance Goods Trade Balance for September (8:30 a.m.)

U.S. - Advance Retail and Wholesale Inventories for September (8:30 a.m.)

Bank of Canada Monetary Policy Announcement (9:45 a.m.)

BoC’s Macklem (Governor) Speaks (10:30 a.m.)

U.S. - Energy Information Administration Crude Oil Inventory Data (10:30 a.m.)

Treasury Auctions $30 Billion in 2-Year Floating Rate Notes (11:30 a.m.)

Federal Reserve Monetary Policy Announcement (2 p.m.)

Fed’s Warsh (Chair) Speaks (2:30 p.m.)