Fed expected to hold rates steady this week despite hot <a re not done hiking
The central bank will maintain current rates just days before the midterm elections, the meeting remains a significant event.
Alan Blinder, a former Fed vice chair and a Princeton University economics professor, anticipates a “hawkish pause.”
Although Fed Chairman Kevin Warsh generally avoids telegraphing the central bank’s future actions, Blinder believes the current climate requires transparency.
“This is a perfect time for clear forward guidance that doesn’t quite say, but strongly hints, we’re pausing now, but we stand ready to raise again and even give a hint that the next meeting might be the next interest rate hike.”
Inflation intensified in September, with the Consumer Price Index rising 3.7% compared to the previous year. Core CPI, which strips out volatile food and energy costs, climbed to 2.6%. Meanwhile, wholesale prices surged by more than 6%, and the Fed’s preferred inflation metric—the core Personal Consumption Expenditures index—is expected to exceed 3%.
In his final comments prior to this week’s policy gathering, many observers believe Warsh reinforced the sentiments previously expressed by Fed Vice Chair Philip Jefferson and New York Fed President John Williams: despite elevated inflation data, they prefer to evaluate further information before committing to additional rate hikes.
Warsh neither supported nor disputed his colleagues’ recent suggestions that they prefer to wait for more data, though he did observe that the global landscape has “broadly conformed to our expectations” since the Fed’s September meeting.
Following the first rate hike in over three years this past September, minutes from that session indicated that most participants believed another increase would likely be necessary by the end of the year.
Ken Rogoff, a professor at Harvard University and former chief economist of the International Monetary Fund, told Yahoo Finance that he expects the Fed to keep rates unchanged next week due to the proximity of the midterm elections occurring less than a week later.
“The fundamentals call for raising the rate,” Rogoff said. “If you didn’t have an election, they should hike … But they are going to hold rates steady and talk about how they’re probably going to increase it once or twice at least in the near future.”
Blinder concurs that the midterms are a factor in the decision-making process. “When it’s that close to an election there’s something to be said for keeping your head down,” he said, noting that while it is far from the only factor, election proximity serves as a “minus” in the mental basket for raising rates.
