The Federal Reserve is scheduled to announce its latest interest rate decision on Wednesday at 2 p.m. ET, with most economists and Wall Street analysts expecting the central bank to leave its benchmark rate unchanged at 3.75% to 4%, according to the source material.
Inflation remains a concern for Fed officials. Headline inflation across the U.S. rose at a 3.7% annual rate in September, driven largely by energy costs, the Labor Department said. Core inflation, which excludes volatile energy and gas categories, increased 2.6% from a year ago, suggesting inflation could be spreading into the broader economy. The Fed targets annual inflation of 2%. Gasoline prices, which have remained above $4 a gallon for the last three months, accounted for more than half the September increase in consumer prices, the Labor Department reported.
The Fed raised its federal funds rate by a quarter percentage point in September, its first increase in three years. Thomas Ryan, senior North America economist at Capital Economics, said in a research note that despite concerning inflation readings and rising inflation expectations, Fed officials "still appear broadly intent on tightening policy at a measured pace." New York Fed President John Williams reinforced this cautious approach, stating in a speech following the September rate hike that "with the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information."
Looking ahead, most economists and investors expect the Fed to raise rates one more time before year-end, likely at its December 8-9 meeting. According to CME Group's Fed Watch tool, which uses 30-day Fed funds futures prices to predict rate decisions, traders see an 88% probability that the Fed will hold rates steady in October and a 71% probability of a rate increase in December.
Fed Chairman Kevin Warsh will hold a press conference after this week's rate decision. Warsh has previously opposed providing forward guidance on rate decisions, meaning investors are unlikely to receive signals about future policy moves until the announcement itself. The Fed's decision comes as Americans prepare for midterm elections on November 3, with many expressing frustration over rising costs for gas, food, utilities and other expenses.
For savers and borrowers, holding rates steady means no immediate change to savings account yields or borrowing costs this week, though the expectation of another rate increase by year-end could lead to further increases in mortgage rates and credit card rates by December.