The Federal Reserve is expected to leave US interest rates unchanged this week, despite persistent inflation and signs that price pressures may be spreading through the wider economy.
Most economists and Wall Street analysts anticipate the central bank will keep its benchmark rate within a range of 3.75% to 4% when its latest policy statement is issued on Wednesday. The decision is due at 2pm Eastern Time.
The meeting follows the Fed’s first rate increase in three years in September, when officials lifted the federal funds rate by a quarter of a percentage point. The move increased borrowing costs across the US economy.
Consumer prices rose at an annual rate of 3.7% in September, with energy costs accounting for much of the increase. Core inflation, which excludes volatile energy and food categories, was up 2.6% from a year earlier, above the Fed’s 2% target.
Petrol prices have remained above four dollars a gallon for the past three months and accounted for more than half of September’s increase in consumer prices, according to the Labor Department.
Thomas Ryan, senior North America economist at investor advisory firm Capital Economics, said the latest inflation figures and higher inflation expectations would concern policymakers, but that they still appeared committed to tightening monetary policy gradually.
Federal Reserve expected to consider another rate rise in December
Financial markets are pricing in an 88% probability that rates will remain unchanged in October, according to CME Group’s FedWatch tool. Traders put the likelihood of another quarter-point increase at the central bank’s final meeting of the year, scheduled for December 8 and 9, at 71%.
The Fed’s quarterly projections last month indicated that its rate-setting committee expected to raise borrowing costs again before the end of the year. However, some policymakers have said there is no need to act hastily.
“With the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information,” John Williams, president of the Federal Reserve Bank of New York, said after the September decision.
The latest announcement comes as Americans prepare to vote in the midterm elections on November 3, with many expressing frustration over the cost of petrol, food, utilities and other household expenses.
Fed chairman Kevin Warsh is due to hold a press conference after the decision. Investors are not expected to receive further guidance before then, as Mr Warsh has argued against sharing forward guidance on future rate decisions.
