The U.S. goods trade deficit widened to $134.9 billion in September — a $2.8 billion jump from August — as imports grew faster than exports in another sign of robust domestic demand. Meanwhile, the Federal Reserve is almost certain to hold interest rates steady at 3.75%–4.00% when it wraps up its two-day meeting at 2 p.m. ET, with midterm elections just six days away.
The Trade Numbers
The Census Bureau’s Advance Economic Indicators report showed exports of goods rose $5.3 billion to $209.2 billion in September, but imports climbed even more, pushing the monthly goods deficit to $134.9 billion — the widest since at least mid-2025. The deficit has now widened in three of the last four months, a signal that domestic demand is pulling in foreign goods faster than global buyers are absorbing American exports.
Wholesale inventories ticked up 0.6% in September, a slight deceleration from August’s 0.7% pace. Retail inventories held steady at 0.3%, suggesting businesses aren’t panic-stocking ahead of the holidays — or potential tariff changes. The combined inventory picture points to cautious, steady restocking rather than a pre-election inventory build.
FOMC: Hold, Then What?
Markets are pricing in a 90% probability the Fed leaves rates unchanged this afternoon, according to CME FedWatch. That’s up from just 36% a month ago — a dramatic swing driven largely by a surge in 10-year Treasury yields that spooked FOMC members into pausing. Those yields hit near-quarter-century highs in the weeks following September’s rate hike, tightening financial conditions on their own and doing some of the Fed’s work for it.
The data, however, tells a hawkish story. September CPI came in at 3.7% annually. Unemployment sits at 4.2%. Weekly jobless claims are running lower than at any point in Fed Chair Kevin Warsh’s lifetime. The labor market isn’t just stable — it’s historically tight.
“The data, in my opinion, do support a rate hike. A strong economy, a strong consumer and labor market, and inflation has deteriorated — it went the wrong way.”
— Kathy Bostjancic, Nationwide Chief Economist (via Reuters)
But the calendar is the calendar. With the November 3 midterm elections less than a week away, the central bank doesn’t want to be the story. “Given that it’s right before an election, they won’t hike in October,” Navy Federal Credit Union chief economist Heather Long told CNBC. Still, nearly 75% of fed funds futures traders expect at least one more quarter-point hike by the December 9 meeting.
Market Reaction
U.S. stock futures were mixed in pre-market trading ahead of the FOMC decision. Dow futures slipped 95 points (-0.18%) while S&P 500 futures edged up 14 points (+0.18%). The muted moves suggest traders are in wait-and-see mode ahead of Warsh’s 2:30 p.m. press conference — nobody wants to make a big bet before hearing the tone.
The 10-year Treasury yield remains the wildcard. Its sharp rise following September’s rate hike is what convinced FOMC members to pump the brakes in the first place. If Warsh’s language this afternoon is even slightly hawkish — if he leans into the inflation data rather than the election calendar — yields could spike again, tightening financial conditions further without the Fed lifting a finger.
Brent crude, meanwhile, remains elevated near five-month highs as the Iran conflict keeps energy markets on edge. Higher oil prices mean higher headline inflation, which makes the Fed’s “patient” posture harder to sustain.
Bottom Line
Today’s trade data confirms what the CPI and jobs numbers have been saying: the U.S. economy is running hot enough to justify higher rates. The Fed will almost certainly skip this meeting for political optics, but the December 9 decision is shaping up to be a live one — and the 75% odds of a hike priced into futures markets feel about right.
The elephant in the room: Thursday’s GDP report. The advance estimate for Q3 growth is expected to come in at 3.1% annualized (per MarketWatch consensus), up from 2.2% in Q2. If that number prints hot — and Friday’s PCE inflation data confirms price pressures are broadening — the “pause” narrative gets a lot harder to defend, election or no election.
Update 2:30 p.m. ET: This post will be updated after the FOMC decision and Chair Warsh’s press conference.