Fed Expected to Hold Rates Steady Days Before Midterms as Inflation Stays Hot

The Federal Reserve is expected to leave interest rates unchanged when it announces its decision Wednesday, less than a week before the midterm elections, according to Fox Business and NBC News. The expected pause comes even though September inflation ran hotter than forecast and some analysts say the case for another increase is building.

Markets are betting that any further tightening will wait until December. For households, that means borrowing costs are likely to stay elevated for now, with more increases possible later.

The key numbers behind the Fed's decision

• 3.7%: The annual inflation rate for September, up from 3.4% the previous month, according to NBC News. Fox Business reported that headline consumer prices rose 0.6% on a monthly basis.
• 2%: The Fed's inflation target, which the current annual rate sits well above.
• 3.75% to 4%: The Fed's current target range for its benchmark rate. NBC News reported the central bank last raised rates by a quarter of a percentage point in September.
• 90.6%: The probability the CME FedWatch tool assigns to rates holding steady this week, according to Fox Business. That is up from 84.5% a week ago and 35.8% last month.
• 75.1%: The tool's probability of a 25-basis-point hike at the Fed's mid-December meeting.
• 46.5%: The tool's chance that rates will be 50 basis points higher, in a range of 4.25% to 4.5%, by March.

Why the Fed is likely to wait

NBC News reported that most officials feel the central bank should not rush into rate decisions, and especially not days before Election Day. Fox Business noted that Fed policymakers say they keep politics out of monetary policy, but can be reluctant to move at meetings that fall just ahead of an election.

Michelle Bowman, the Fed's vice chair for supervision, said on Oct. 14 that inflation remains above the Fed's goal but that there is time to see how financial conditions develop before taking more action, NBC News reported. San Francisco Fed President Mary Daly said in a recent interview that she does not feel pressure to decide with limited information.

Analysts at Deutsche Bank wrote that the argument for skipping an October increase is not especially strong. They also said the Fed might prefer to stay out of the headlines for raising rates right before a midterm vote in which affordability is the main concern, according to NBC News.

What economists say could come next

Heather Long, chief economist at Navy Federal Credit Union, told Fox Business that the September data raised the chances of an October increase but that doing so within a week of the election would be a very high bar. She said the data shows the Fed needs to act again, though not immediately, and that it could wait until December.

Long also pointed to gas prices, which she said have eased somewhat since their September highs. In her view, October inflation data could come in a little cooler, giving the Fed room to wait a few weeks and judge how widespread the price pressures are. She expects the Fed to raise rates again, probably in December.

What worries her, she said, is how many areas showed hot inflation in the latest report, including used car prices, airfares, recreation costs, auto repair costs and medical costs.

What this means for borrowing costs and household budgets

Long said she expects a couple more hikes in 2027 and that mortgage rates well above 7% could persist for at least a year, possibly longer. That is her forecast, not a Fed decision.

Prices are also a central issue for voters. NBC News reported that voters repeatedly tell pollsters that rising prices, particularly for housing and energy, are their top concern. According to the network's most recent poll, two-thirds of Americans called soaring gas prices a very serious or somewhat serious problem, and more than half said economic conditions had changed the kinds of groceries they buy.

The same poll found President Donald Trump's approval rating at 27% for his handling of the cost of living and 29% for his handling of the war with Iran, NBC News reported. The network said voters blame the president's Iran war and global tariffs for higher prices, and that control of both the House and the Senate is at stake in Tuesday's election.

Even the White House acknowledged the weak inflation reading. Kevin Hassett, director of the National Economic Council, called it a "disappointing number," according to NBC News.

What to watch Wednesday

The Fed announces its decision Wednesday. Beyond the rate itself, markets will be watching for signals about whether officials are preparing to raise rates in December, the next meeting the CME tool points to as a likely time for a move. Fed Chair Kevin Warsh said at the time of the September increase that inflation was too high and had been for too long, NBC News reported.

Around Prague, based on reporting by Fox Business, NBC News