Fed tipped to hold rates days before midterms, with a December hike still on the table
The Federal Reserve is expected to leave its benchmark interest rate unchanged at 3.75 to 4.0 percent on Wednesday, holding fire just days before U.S. midterm elections even though inflation remains well above its 2 percent target, according to Token Times.
The Federal Open Market Committee meets over two days and announces its decision at 2:00 pm local time (18:00 GMT) on Wednesday. At its September meeting the committee raised the federal funds rate for the first time in three years, and markets are pricing at least one more increase before the end of 2026. The Fed's preferred inflation gauge, the Personal Consumption Expenditures price index, peaked at 7.2 percent in 2022, was tamed to around 2.2 percent by late 2024, and has since climbed back to a three-year high of 3.9 percent in May, according to Token Times.
Loretta Mester, former regional head of the Cleveland Fed, said the proximity of the vote would not sway the committee. "The Fed doesn't take into account any kind of political issues in that FOMC room," she said. "It really is based on the economics." Mester argued the fundamentals point to further tightening: "The data that's come in continue to show a stable labor market and continue to show inflation above target." Still, she said most policymakers appeared keen to avoid moving too quickly and might wait until the December meeting.
Wendy Edelberg, a senior fellow at the Brookings Institution, said central bankers would rather stay out of the political debate before the midterms. "It's unhelpful for everyone if the Fed gets wrapped up in all the political discourse right before an election," she said, adding that a December move rather than an October one would carry little economic cost.
The decision lands in an unusually charged setting. President Donald Trump has repeatedly pressed for lower rates, and since returning to power has moved against the Fed's independence, launching a criminal probe against then-chair Jerome Powell and attempting to unseat Governor Lisa Cook. The probe was dropped to smooth the way for Kevin Warsh's Senate confirmation as chair, but the effort to remove Cook continues despite a Supreme Court decision nullifying an earlier attempt; Cook, who denies mortgage fraud allegations, declined last week to attend a hearing in the White House probe.
