Interest Rates Should Remain Unchanged Today, but at Least 3 Federal Reserve Rate Hikes Are Expected by September 2027
Today, Oct. 28, is a huge day for the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC) — and it has nothing to do with earnings season. In mere hours, at 2 p.m. ET, Fed Chair Kevin Warsh and the Federal Open Market Committee (FOMC) will announce their decision on interest rates.
Heading into this past weekend, the odds of FOMC policymakers keeping the federal funds target rate unchanged at 3.75%-4.00% surged to almost 91%, up sharply from just 29% one month prior.
Missed AI’s “Act 1”? Act 2 Could Be 14x Bigger. Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout. Continue »
Fed Chair Kevin Warsh and the FOMC are likely to get aggressive with rate hikes at future meetings. Image source: Official Federal Reserve Photo.
But even though interest rates should remain unchanged today, the Fed’s fourth rate-hiking cycle of the 21st century looks to be just getting started. That’s a potential worst-case scenario for a historically expensive, artificial intelligence (AI)-driven stock market.
Several interest rate hikes are expected by mid-September 2027
Though there’s no way to concretely predict what the central bank will do ahead of time, the CME Group‘s (NASDAQ:CME) FedWatch Tool has an impressive track record of foreshadowing what’s to come. The FedWatch Tool uses 30-day Fed Funds futures prices to determine the probabilities of changes to the federal funds target rate.
For the Sept. 15, 2027 meeting, the odds are nearly 56% that policymakers will raise rates by at least 75 basis points (bps):
-
Unchanged (3.75%-4.00%): 2.1%
-
Raise 25 bps (4.00%-4.25%): 13.1%
-
Raise 50 bps (4.25%-4.50%): 29.3%
-
Raise 75 bps (4.50%-4.75%): 31.5%
-
Raise 100 bps (4.75%-5.00%): 17.8%
-
Raise 125 bps (5.00%-5.25%): 5.4%
-
Raise 150 bps (5.25%-5.50%): 0.8%
Fed Chair Warsh and the FOMC’s meeting minutes have singled out three catalysts driving up consumer prices.
President Donald Trump’s tariffs have been identified by Warsh and former Fed Chair Jerome Powell as lifting consumer prices. Adding duties to imports risks increasing domestic manufacturing costs, which are then passed on to consumers.
The FOMC also points to the effects of the Iran war on elevated inflation. Iran’s closure of the Strait of Hormuz has disrupted the daily flow of around a fifth of the world’s crude oil supply, sending fuel prices soaring.
But perhaps the biggest surprise of Warsh’s roughly five-month tenure as Fed chair has been the FOMC identifying the AI infrastructure build-out as a meaningful source of inflation.
The AI build-out has been an absolute gift for investors. Several AI hardware stocks have delivered game-changing returns for their shareholders, fueled by otherworldly enterprise demand for their products and persistent supply shortages.
However, this same dynamic that’s powering the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite to new heights is also increasing prices for consumers. Tech hardware supply shortages, coupled with never-before-witnessed pricing power for AI companies, are boosting the prevailing inflation rate with no clear end in sight.
If the CME Group’s FedWatch Tool proves accurate and the FOMC gets more aggressive with interest rate hikes at future meetings, it could spell disaster for Wall Street. The AI infrastructure build-out is partially financed with debt. If the cost to borrow rises and the data center build-out slows, even marginally, the second-priciest stock market in history would almost certainly take it on the chin.
Even though interest rates are unlikely to change at today’s FOMC meeting, the foundation is being laid for a more aggressive rate-hiking cycle.
Should you buy stock in S&P 500 Index right now?
Before you buy stock in S&P 500 Index, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and S&P 500 Index wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $344,608!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,327,222!*
Now, it’s worth noting Stock Advisor’s total average return is 904% — a market-crushing outperformance compared to 211% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
*Stock Advisor returns as of October 28, 2026.
Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CME Group. The Motley Fool has a disclosure policy.
Interest Rates Should Remain Unchanged Today, but at Least 3 Federal Reserve Rate Hikes Are Expected by September 2027 was originally published by The Motley Fool