The Fed: An October Pause, Then One More Hike?

The speaker’s central thesis is that hot inflation need not translate into repeated rate hikes throughout 2027. In the transcript’s stated 2026 setting, he expects an October pause, a December increase, and potentially an extended hold afterward. The crucial variable is whether bond yields fall after the midterms: that could make existing policy sufficiently restrictive without the additional hikes markets currently anticipate.

• Near-term expectations favor a pause despite inflation pressure. The speaker reports a 4% policy rate and elevated consumer- and producer-price inflation readings. Nevertheless, he puts the market-implied probability of an October hold at roughly 80%, later citing about 16% for a hike. He explicitly corrects an earlier statement that had reversed the odds. His own forecast also favors no October increase.
• The historical template is 2018—not an assertion that conditions are identical. That year, the Fed raised its target range to 2%–2.25% in September, held at its November meeting around the midterms, and increased it again in December. The speaker sees a comparable September-hike, autumn-pause, December-hike sequence developing in 2026, while acknowledging that today’s market differs.
• Longer-range projections are scenarios, not commitments. The December 2018 Summary of Economic Projections showed a 2.9% federal funds rate for 2019, versus 2.4% for 2018—effectively two further hikes. According to the speaker, those hikes never happened; the Fed instead began cutting during 2019, before the pandemic. He therefore distrusts confidently extrapolating the market’s current expectation of two additional hikes in 2027.
• Watch the two-year Treasury yield rather than only the projected meeting calendar. The speaker argues that the policy rate often follows the two-year yield, which he quotes at 4.76% after recently reaching 4.9%, above the reported 4% policy rate. His two-year yield versus Fed funds chart illustrates that relationship. This is his interpretive framework, not proof that the Fed mechanically tracks that yield.
• The proposed turning point is convergence between market yields and policy. In his scenario, yields rebound into the midterms, then decline afterward. A December hike taking the policy rate to 4.25%, combined with a falling two-year yield, could bring the two close together. Using the two-year yield as an approximation of neutral—a proxy he explicitly qualifies—he argues that further tightening could become unnecessary, as in his reading of 2018–19.
• The broader risk is that higher long-term yields do the tightening themselves. The speaker suggests that borrowing conditions could weigh on businesses and generate growth scares, undermining expected future hikes. His practical watchpoints are the post-midterm direction of yields, their distance from the policy rate, and emerging growth weakness. His preferred outcome is a prolonged hold, but it remains conditional rather than a firm prediction.

Caveats: The historical analogy is not a guarantee, and the neutral-rate proxy is disputed even within the speaker’s presentation. The transcript gives both November 7 and November 8 for the 2018 yield peak. Its phrase “once we get out of 2027” also leaves timing unresolved; it should not be silently read as “into 2027.”

Full transcript