The US Federal Reserve is considering holding interest rates steady despite continued inflation; markets anticipate a delay in raising rates until December.
The US Federal Reserve faces a new test at its upcoming meeting, amid persistent inflationary pressures and a rising cost of living. Expectations are growing that the Fed will keep interest rates unchanged in October and postpone a potential rate hike until December, pending further economic data. The meeting, scheduled for Tuesday and Wednesday, October 27 and 28, comes ahead of the US midterm elections on November 3, at a time when the cost of living is a major concern for both voters and monetary policymakers.
In September, the Federal Reserve unanimously decided to raise short-term interest rates for the first time in three years, bringing them to a range of 3.75% to 4%, in an attempt to control persistent inflation. The central bank now faces a dilemma: whether to raise rates again to combat rising prices, or to hold them steady temporarily to assess the impact of the previous decision, risking continued high inflation.
Despite pressure from the administration of US President Donald Trump to lower interest rates, expectations are that the Federal Reserve will not cut them at its current meeting, especially given ongoing concerns about inflation. Federal Reserve Chairman Kevin Warsh said during a meeting in Bangkok on October 16 that discussions with central bank officials reflected shared concerns about persistently rising prices, emphasizing the importance of achieving price stability.
Market expectations suggest the Federal Reserve may opt to hold interest rates steady at its current meeting before making a new decision in December. According to the CME FedWatch tool, most traders are betting on a rate hold in October, with a 25 basis point increase expected in December. This aligns with a Reuters poll of 100 economists, where 94 predicted rates would remain unchanged at 3.75% to 4% in October, while all respondents anticipated a rate hike in December.
Economists believe that holding rates steady may give the central bank an opportunity to assess the impact of the previous rate hike on the economy, especially since monetary policy changes need time to show their effects on economic activity and inflation. Federal Reserve Vice Chairman Philip Jefferson said in a speech at the University of Virginia on October 1 that bank officials need more time to reach their assessment of the next step.
The meeting comes amid continued concerns about inflation, despite the US jobs report for September falling short of analysts’ expectations. Federal Reserve officials believe monetary policy decisions should be based on economic data, not political considerations, making the assessment of the impact of previous rate hikes, inflation developments, and labor market trends crucial factors in determining the next decision.
