Fed Holds Rates as Expected Ahead of US Elections; ASX Set to Advance on Wall Street Gains

The Quick Take

• The Federal Reserve kept interest rates on hold, opting to delay any changes until after next week's US midterm elections
• Wall Street advanced on the widely expected Fed hold decision, with the ASX positioned to open higher in response
• The Fed cited a need for further data on inflation's path before committing to any rate change

The Federal Reserve delivered a widely expected rate hold decision, opting not to alter borrowing costs with the US midterm elections just one week away. The central bank's statement indicated that policymakers chose to await additional data on the trajectory of inflation before committing to any policy adjustment, a stance consistent with the measured approach the Fed has adopted through the latter part of the tightening cycle. The decision was telegraphed sufficiently well by prior Fed communication that markets had already largely priced it in, explaining why Wall Street reacted with a steady-to-advancing tone rather than significant volatility on the announcement itself.

For Australian markets, the Fed's hold decision creates a constructive backdrop for the ASX open. A US rate hold — with no tightening surprise — maintains the risk-on environment that has supported equity valuations globally, and the ASX has historically shown positive correlation with overnight Wall Street direction. Australian banks, resource stocks, and technology names all benefit from a stable US rate environment as it supports commodity demand expectations and global risk appetite. The Australian dollar may also find modest support from reduced expectation of aggressive Fed tightening, which would reduce the yield differential advantage of US dollar assets over AUD-denominated securities.

The critical next event for both the Fed's trajectory and global market direction is the US midterm election outcome: a divided Congress result would likely reduce the risk of expansionary fiscal stimulus that could reignite inflation, giving the Fed more flexibility to hold or cut in subsequent meetings. The macro variable that determines whether the current Fed pause extends into a full cutting cycle is the path of US core PCE inflation — the Fed's preferred measure. Watch the October US core PCE data release, scheduled shortly after the election, as the data point that will set the tone for the Fed's December 2026 meeting decision and with it the near-term direction of global risk assets.

Synthesized from 2 sources.