If the Fed raises rates at its October 28 meeting, do stocks fall further, and if it doesn't, do they rebound? Either way, is there anything I should do in advance?
2026-10-15
What matters is the signal about December, not the result
This meeting has no economic projections attached. The statement and the press conference wording are nearly all the information the market gets. So the market reacts not to whether the Fed hikes but to the wording on the path ahead. On September 16, the Fed raised rates by 25bp, yet it became known that some members forecast a hold or cuts, and a relief rally followed. It is a precedent where signs that hikes are ending moved prices more than the hike itself.
The hike probability figures are hard to trust
According to the report, the probability of an October hike diverges by source, from 30-50% to a hold-favored 81.7%. Search also did not find a consistent current probability, and the latest values need to be checked directly on CME FedWatch and prediction markets. The inconsistency is itself information. It means the market is also unsure, so whichever way the result goes, there is room for prices to move sharply at once.
Scenario branches
| Path | Condition | Possible market reaction |
|---|---|---|
| A. Hike, signals more hikes | Hawkish wording | Long-term yields rise, further pressure on growth and small caps |
| B. Hike, signals last hike | Dissent highlighted, data dependence stressed | Relief rally like September's is possible |
| C. Hold, signals December hike | December hike expectations of 75-85% persist | Short-term rebound, then continued rate pressure |
| D. Hold, signals end of hiking cycle | Stresses weaker employment | Most favorable, though it looks unlikely given energy-driven inflation |
Today the 10-year yield eased slightly after the CPI shock to 5.190% (-2.7bp) and the 30-year to 5.525%. This may mean the market has already priced in a hike to a considerable degree, and even for the same hike, softer-than-expected wording could actually lower yields. However, the intraday highs in reports and the close do not match, so timing differences need to be taken into account.
Growth and inflation pointing in opposite directions
September employment grew only +29K, and unemployment is 4.2%. With inflation rising while employment cools, it is hard for the Fed to decide on a single data point. In this stretch, the fact that Fed officials are divided is itself a source of volatility.
What you can do in advance
- Do not try to guess the outcome. In an event with split probabilities, directional bets have a low expected value.
- Adjust total risk exposure. If your Nasdaq and small-cap weights are high, move part into defensive sectors or short-term Treasuries before the FOMC to reduce drawdown sensitivity. The gap over the last five sessions, with the Dow holding up and the Nasdaq falling, already hints in that direction.
- Use installment buying. Do not conclude from one day's reaction right after the 28th, and go in gradually two to three days later, once yields and the reading of the wording have settled.
- Set monitoring criteria. Treat the 10-year yield topping 5.3% and the 30-year settling above 5.6% as risk signals.
More inflation and employment data may come out once more before mid-November, so market expectations will keep shifting. Rather than taking a fixed position now, reducing exposure and adding as you see the reaction suits this stretch.