Midterms, refunding and a December hike: rate desks map a crowded November

A December hike still on the table

The rates discussion starts from a steady hold with a hawkish edge. J.P. Morgan's rates podcast, hosted by analysts Amanda Burke and Jay Barry, said the FOMC held interest rates steady at its most recent meeting but added language that accumulating more information will help determine the policy stance for returning inflation to 2%. The same podcast said J.P. Morgan expects a rate hike at the December meeting, and Nomura's week-ahead podcast separately expected one final 25-basis-point hike in December. m:…9093 m:…2868

The calendar itself is changing. The J.P. Morgan podcast noted that Fed Chair Kevin Warsh announced some future meetings will focus entirely on broad monetary policy strategy rather than policy decisions, and Nordea's podcast said the Federal Reserve plans to reduce the number of meetings where rate decisions are made from eight to seven next year and to six by 2028. Fewer decision meetings means fewer scheduled chances to recalibrate, which the J.P. Morgan discussion flagged as a live question for next year. m:…9093 m:…4144

The Treasury calendar looms over the vote

Running alongside the Fed calendar is a heavy funding programme. J.P. Morgan's rates podcast said Treasury is expected to issue $991 billion in net privately held bills in calendar year 2027, and projected a $1.96 trillion deficit for fiscal year 2027. The podcast also flagged a significant risk that the Treasury Department cuts long-end auction sizes in response to discomfort with yield levels, even though its base expectation is that current auction sizes are maintained through August 2027. That tension, between the base case and the intervention risk, is the refunding question desks are watching. m:…9093

Europe adds a fiscal strain of its own. Nordea's podcast said France's fiscal situation is unsustainable because interest rates are significantly higher than growth rates, and that France would require a primary balance of around 2% to maintain fiscal sustainability at current interest rate levels. The same discussion noted euro area inflation reached 3.8% in September, a backdrop that limits how much relief central banks can offer indebted governments. m:…4144

Currencies expect a quiet vote, politics expects noise

Currency strategists are notably calmer about the midterms than the political commentators. J.P. Morgan's FX team said the US midterm elections are not a major event risk for foreign exchange because the presidency is not changing, and that a strong Democratic performance historically correlates with a flat to lower dollar in the following month. The team maintains a constructive view on the dollar versus low-yielding currencies and prefers the euro as a funding currency for carry trades rather than the Swiss franc or yen. m:…3685

The political forecast itself is stark. Nomura's public policy team, via Samira Fazili on the week-ahead podcast, put Democrats' chances of flipping the House at 90% and the Senate at 60%, while Nordea's podcast said the midterms will likely produce a lame-duck president with limited legislative progress regardless of the outcome. Nomura added that regulatory agencies are unlikely to change their agendas much, but that the AI industry is a likely target for upcoming congressional investigations. The market read-across is that November may bring more oversight theatre than policy change, with the debt limit, in Nomura's phrase, likely unaddressed until a crisis point. m:…2868 m:…4144