Fed Expected to Hold Rates Steady Before Midterms

The US Federal Reserve is expected to leave interest rates unchanged on Wednesday during its last rate-setting meeting before the midterm elections, keeping rates at one of the highest pre-election levels seen in over 20 years. Last month, Fed officials raised rates for the first time since 2023, citing rising inflation.

Inflation has hovered for years above the Fed's target rate of 2%, and for most of this year, the annualized inflation rate has remained above 3%. Though inflation rose higher in September, going from 3.4% in August to 3.7%, a pause would signal the central bank is taking a wait-and-see approach ahead of the midterms next week.

The rate increase infuriated Donald Trump, who said that 'interest rates in the United States should be 1% or less'. Multiple Fed leaders have suggested in recent weeks that the central bank has room for a pause, even if most Fed economists are predicting one more rate hike before the end of the year.

Fed governor Christopher Waller said earlier this month that 'the hikes do not need to come at consecutive meetings, but they should be in place in an acceptable period of time'. Rising prices this year have largely been driven by war in the Middle East with Iran, and oil traded briefly above $117 a barrel earlier this week, its highest price in more than six months.

Fed chair Kevin Warsh has suggested that present-day inflation has persisted beyond the war, and the central bank's decision to raise rates was to prevent prices from creeping up further. At the Fed's September meeting, Warsh said: 'We cannot affect any individual price, whether it be oil prices, whether it be foodstuffs at the grocery store.'