The Federal Reserve is expected to keep its key interest rate unchanged at its upcoming meeting, but investors will closely scrutinize the central bank’s statement for hints about future moves and inflation trends. The Oct. 27-28 meeting marks the fourth under Chairman Kevin Warsh, whose tenure has been shadowed by questions about his independence from President Donald Trump, who appointed him earlier this year. The meeting also comes just six days before midterm elections, with affordability concerns looming large due to soaring gas prices, elevated grocery costs, and high mortgage rates.
Despite inflation running hotter than expected last month, Wall Street now sees almost no chance of a rate hike at this meeting, with the Fed’s rate currently at about 3.9%. Philip Jefferson, vice chair of the Fed’s board of governors, suggested that longer-term interest rates had already risen sharply, indicating caution. Joseph LaVorgna, chief economist at SMBC Americas, noted that the Fed is unlikely to act so close to the election, avoiding any perceived interference with the White House.
Warsh’s approach to forward guidance, clear signals about future moves, has raised eyebrows. While he has criticized such signals, recent speeches by top officials have been interpreted by some as a form of guidance. Aditya Bhave, head of U.S. economics research at Bank of America, questioned whether Warsh was truly on board with this messaging or if a surprise rate hike could undermine the credibility of forward guidance.
Warsh’s independence has been tested, particularly after he defied Trump’s preferences by raising rates in September. Trump has since renewed efforts to remove Fed governor Lisa Cook, adding to concerns about political influence. While some economists believe Warsh’s actions have reassured markets, others, like Derek Tang of Monetary Policy Analytics, argue that questions about his independence remain.
Inflation has been a persistent concern, with diesel fuel reaching an all-time high of $6.53 in late September before dipping slightly. Warsh’s characterization of inflation as too high and his commitment to returning it to the Fed’s 2% target could signal a rate hike in December. Meanwhile, dissents from officials like Beth Hammack of the Cleveland Fed and Lorie Logan of the Dallas Fed may highlight ongoing divisions within the committee.