The Federal Reserve is convening in Washington this week to deliberate on whether to increase strategy to curb inflation.
These meetings occur at a time when escalating prices are significantly impacting the U.S. economy, with inflation poised to be a central issue in next Tuesday’s midterm elections.
Nevertheless, members of the central bank’s interest rate-setting committee are widely anticipated to maintain benchmark rates at their current levels this month.
There are several factors suggesting the Fed will likely refrain from adjusting rates on Wednesday. Most stem from a consensus among senior officials that the central bank should avoid hasty interest rate decisions—particularly less than a week before Election Day.
“Inflation remains above our goal,” Michelle Bowman, the Fed’s vice chair for supervision, said Oct. 14. “We have some time to wait and see how financial conditions evolve before we take more action.”
The Fed last raised rates by a quarter of a percentage point in September, following a series of monthly inflation reports that consistently exceeded its 2% target, with no immediate signs of price relief.
“The plain fact is that inflation is too high and has been for too long,” Federal Reserve Chair Kevin Warsh said at the time.
Inflation data for September, released earlier this month, reinforced Warsh’s assessment, showing the annual inflation rate climbing to 3.7% from 3.4% the previous month.
Some analysts argue that Warsh and the Fed are taking a gamble by choosing to keep rates steady, given the current trajectory of inflation.
“The case for skipping [a rate hike in] October is not terribly compelling,” analysts at Deutsche Bank wrote.
Fed officials, however, emphasize a core component of the dual mandate assigned by Congress: promoting maximum employment while ensuring price stability.
It is specifically the “stable” aspect of that mandate that supports the Fed’s famously cautious and deliberative process.
“I don’t feel urgent that we have to decide with a limited set of information,” San Francisco Fed President Mary Daly said in a recent interview. “I think we have the time that we need.”
Another guiding principle likely influencing expectations for Wednesday is the Fed’s tradition of maintaining distance from political affairs.
If the Fed were to hike rates just days before the midterms, it could, at best, risk appearing politically motivated. At worst, it could influence voter behavior.
“We could imagine that all else equal the Fed might prefer to stay out of the headlines for raising rates just ahead of a midterm election where affordability is the principal concern,” the Deutsche Bank analysts wrote.
Voters have consistently informed pollsters that rising costs, particularly regarding energy and housing, are their primary concerns when heading to the polls.
With control of both the House and the Senate at stake in Tuesday’s election, voters have expressed clear opinions on who is responsible for higher prices: President Donald Trump’s war in Iran and his global tariff regime.
The most recent NBC News poll found Trump’s approval rating at 27% for his management of the cost of living and only 29% for his handling of the war with Iran.
Two-thirds of Americans said the surge in gas prices resulting from Trump’s Iran war was either a “very serious” or a “somewhat serious” problem.
Similarly, more than half of those surveyed indicated that current economic conditions have forced them to alter their grocery shopping habits.
Collectively, these factors create a challenging political climate for Trump’s fellow Republicans, who are struggling to reconcile their general support for him with the growing unpopularity of his policies among the electorate.
Even the Trump administration, which typically maintains an optimistic outlook regarding the economy and inflation, expressed concern following the most recent inflation report earlier this month.
“This was a disappointing number,” said Kevin Hassett, director of the White House National Economic Council.
When asked by Fox Business hosts why voters held such negative perceptions of the economy despite increased spending, Hassett was uncertain. “It’s a puzzle that we’re noodling about every day,” he said.
