Fed Expected to Hold Rates at 3.75%-4% Wednesday Despite 3.7% Inflation and Midterm Pressure
Markets price an 88% chance of a hold and a 71% chance of a second hike in December, as gas above $4 keeps prices climbing.
The Federal Reserve is widely expected to leave its benchmark interest rate unchanged at 3.75 percent to 4 percent when it announces its decision at 2 p.m. Eastern time on Wednesday, even as inflation runs well above its 2 percent target and the meeting lands just days before the November 3 midterm elections.
Consumer prices rose at a 3.7 percent annual rate in September, driven largely by higher energy costs. Core inflation, which strips out volatile food and energy, was 2.6 percent from a year earlier, and there are signs that price pressures may be spreading into the broader economy. Gasoline has stayed above $4 a gallon for three months, and the Labor Department says fuel accounted for more than half of September's rise in consumer prices.
The Fed's last move came in September, when it raised the federal funds rate by a quarter of a percentage point, its first increase in three years. The federal funds rate is what banks charge one another for overnight loans, and changes to it ripple through borrowing costs across the economy.
Analysts still expect the central bank to act again before the year ends. CME Group's FedWatch tool, which reads 30-day fed funds futures, showed an 88 percent probability of a hold this week and a 71 percent probability of a hike at the final meeting of 2026 on December 8-9. There is no meeting in November. The Fed's quarterly projections last month signaled that policymakers expected to raise rates later in the year.
Not every official sounds hurried. New York Fed President John Williams, speaking at the University at Buffalo after the September hike, said there is 'no need for urgency' and that the central bank has time to gather more information. Thomas Ryan of Capital Economics wrote in a recent note that although hot inflation data and rising inflation expectations will worry officials, they 'still appear broadly intent on tightening policy at a measured pace.'
Fed Chair Kevin Warsh will hold a press conference after the decision. Warsh has argued against forward guidance, meaning he generally does not signal future policy moves in advance, so investors should not expect clear hints about the path of rates from him.
The timing is politically delicate. Many Americans have voiced frustration with the economy and with rising costs for gas, groceries, utilities and other essentials, and a rate increase would raise borrowing costs for households that are already stretched. A hold would avoid adding to that pressure before Election Day, while keeping a December increase firmly on the table if prices keep climbing.
