Fed Expected to Hold Rates Steady This Week as Inflation Pressures Linger

The Federal Reserve meets this week to decide whether to raise interest rates for a second time this year as it works to bring down inflation. Most economists and Wall Street analysts expect officials to leave the benchmark rate unchanged at 3.75% to 4% when the central bank releases its policy statement at 2 p.m. ET on Wednesday.

Consumer prices have climbed sharply this year, driven in September by higher energy costs. Core inflation, which strips out volatile energy and gasoline categories, rose 2.6% from a year earlier, a sign that price pressures may be spreading through the wider economy. The Fed's target is annual inflation of 2%.

Gasoline has stayed above $4 a gallon for the past three months. According to the Labor Department, it accounted for more than half of the increase in consumer prices in September.

Thomas Ryan, senior North America economist at investor advisory firm Capital Economics, noted in a recent research note that the hot inflation readings and rising inflation expectations will concern Fed officials. Even so, he wrote, they "still appear broadly intent on tightening policy at a measured pace."

In September, the Fed raised the rate banks charge each other for overnight loans by a quarter of a percentage point. It was the central bank's first hike in three years and pushed up borrowing costs across the U.S. economy.

Markets are betting on patience for now. CME Group's Fed Watch tool, which uses 30-day Fed funds futures prices to forecast rate decisions, shows traders see an 88% probability that the Fed holds rates steady in October. The same tool shows a 71% probability of an increase in December. No meeting is scheduled for November.

Most economists and investors expect one more hike before the year ends, most likely at the Fed's final meeting of 2026 on Dec. 8-9. In its quarterly projections last month, the central bank signaled that its rate-setting committee expected to raise rates later this year.

Some policymakers have also indicated there is no rush. After the September increase, New York Fed President John Williams said in a speech at the University at Buffalo: "With the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information."

The meeting comes as Americans prepare to vote in the midterm elections on Nov. 3. Many voters have voiced frustration with the economy as they cope with the cost of gas, food and other expenses.

Fed Chairman Kevin Warsh will hold a press conference after the decision. Investors are unlikely to learn much beforehand, since Warsh has argued against offering forward guidance on rate moves.