The US Federal Reserve is set to hold its next interest rate meeting. Despite persistently high inflation and market expectations of at least one more rate increase this year, analysts generally expect the Fed to leave rates unchanged to avoid being drawn into political disputes at a sensitive time ahead of the midterm elections.
The Federal Open Market Committee (FOMC) begins its two-day rate-setting meeting on Tuesday (27 October) and will announce its latest interest rate decision at 2pm US Eastern time on Wednesday (28 October), or 2am on Thursday in Singapore.
At its last meeting in September, the committee raised the target range for the federal funds rate to 3.75%–4.0%, its first rate increase in three years.
The Fed has failed to meet its long-term inflation target of 2% for more than five consecutive years. In 2022, US inflation as measured by the personal consumption expenditures (PCE) index reached 7.2%, its peak during the COVID-19 pandemic. A series of interest rate increases subsequently brought it down to about 2.2% by the end of 2024.
However, after Donald Trump returned to the White House last year, his policies, including tariffs and military action against Iran, pushed inflation up again. PCE inflation reached a three-year high of 3.9% in May this year.
Following US and Israeli attacks on Iran in February this year, Tehran’s retaliation sharply reduced oil and natural gas supplies shipped through the Persian Gulf, sending global energy prices soaring. The pressure spread to other goods and services, making high prices a key issue in the midterm elections.
This Fed meeting comes just days before the 3 November midterm elections. But former Federal Reserve Bank of Cleveland president Loretta Mester said the Fed would base its interest rate decisions on economic considerations, not political factors.
Mester told AFP: “The data that's come in continue to show a stable labour market and continue to show inflation above target. The economics would suggest then you need to continue raising rates.”
However, Mester said most policymakers appeared reluctant to move too quickly and might therefore leave rates unchanged at this meeting, waiting until the next meeting in early December to raise them further.
Wendy Edelberg, a senior fellow at the Brookings Institution, said the Fed would not want to be drawn into political debate as the midterms approached. Moreover, waiting until December to raise rates rather than doing so now would make little difference economically.
Edelberg said such a decision would be less about appeasing Trump than about avoiding becoming a political target.
Since returning to the White House, Trump has launched unprecedented attacks on the traditionally independent Fed, opening a criminal investigation into then Fed chair Jerome Powell and attempting to remove Fed governor Lisa Cook.
The investigation into Powell was eventually dropped to clear the way for the confirmation of Trump’s preferred nominee for Fed chair, Kevin Warsh. The Supreme Court also rejected Trump’s request to fire Cook, but his administration is still pursuing a mortgage fraud investigation into her.
