The Federal Reserve is expected to keep its benchmark interest rate unchanged at 3.75% to 4% when it announces its decision at 19:00 CET on Wednesday, just days before the US midterm elections. Markets anticipate a 90% chance of no change, but a 73% likelihood of a quarter-point hike in December, according to CME Group's FedWatch tool.
Inflation remains a concern, with consumer prices rising 3.7% in September and core inflation at 2.6%. Energy prices, particularly petrol and diesel, have surged, contributing significantly to the inflation figures. Fed officials, however, have downplayed the urgency for immediate action, with Vice Chair Philip Jefferson and New York Fed President John Williams both emphasizing the need for careful consideration.
Political considerations also play a role, as the Fed avoids actions that could be seen as interfering with the upcoming elections. However, dissenting voices like Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan argue that rates are not yet high enough to cool inflation. The economy shows signs of resilience, with GDP growth at 2.2% in the second quarter and an estimated 3.5% for the third.
All eyes will be on Fed Chair Kevin Warsh, who will speak to reporters at 19:30 CET. His remarks will be closely scrutinized for any hints about future policy moves, particularly regarding the Fed's 2% inflation target. Warsh has avoided forward guidance, but any indication of a December hike could influence market expectations.