Fed Unlikely to Hike Rates Before Midterm Elections, UBS Analyst Warns

UBS analyst Simon Penn has pored over historical data going back to 1990 and found that, aside from this month's rate hike, there have been only three instances where the Federal Reserve raised interest rates at a policy meeting held one month before midterm elections. Those instances were in 2004, 2018, and 2022.

This makes September's move a historically rare fourth pre-election hike, leaving little room for further tightening. Penn argues that the market is pricing in another immediate rate hike on October 28, but this ignores Washington's most important political operating rule, the Fed has never raised rates at an October meeting held just before midterm elections.

With the October 28 meeting falling just days before the early-November vote, policymakers would risk 'openly detonating markets' by raising interest rates again. This would be a liability no Fed would want to bear, especially after already hiking rates in September.