Federal Reserve Opens Two-Day Meeting With a Rate Hold Widely Expected Before the Midterms

A hold is the wide expectation

The Federal Reserve opened its two-day policy meeting on Tuesday, with investors widely expecting interest rates to stay on hold when the meeting ends Wednesday. The gathering on October 27 and 28 is the fourth since Kevin Warsh took charge of the central bank, and it lands six days before the midterm elections.

Only weeks ago, a rate increase looked likely. After inflation ran hotter than forecast last month, many traders and some economists expected a quarter-point increase to roughly 4.1 percent, according to the Associated Press. Since then, several senior officials have played down that possibility in public remarks, and futures markets now price in almost no chance of a move from the current level of about 3.9 percent.

Federal Reserve Vice Chair Philip Jefferson noted that longer-term rates had jumped in financial markets and said officials would need to reach their own judgment, which may take more time. SMBC Americas economist Joseph LaVorgna, who previously served in the Trump administration, said the Fed would not want to antagonize the White House six days before an election.

What borrowers and markets are watching

Inflation remains the core worry. Prices have topped expectations for two straight months, and diesel hit a record $6.53 a gallon in late September before easing only slightly to $6.35. Higher fuel costs ripple through shipping and can lift the price of almost everything.

Borrowers are already feeling the higher rates. The average 30-year mortgage rate hit a three-year high of 7.4 percent this month before slipping to 7.32 percent, compared with just under 6.2 percent a year ago. Oxford Economics estimates that this year’s jump has priced another 5 million households out of buying a home.

Fed watchers also expect possible dissents. The September vote was unanimous, but Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan are seen as the most likely to back a hike this week. If Warsh repeats that inflation must return to 2 percent in a timelier way, many will read it as a sign that a December increase is on the table. Independence is another theme of the meeting: Warsh defied President Donald Trump’s wishes in September by raising rates, and Trump has since renewed efforts to remove Fed governor Lisa Cook, after the Supreme Court blocked an earlier attempt in June.

Reporting based on coverage by QNC News, citing the Associated Press.