Federal Reserve Expected to Leave Interest Rates Unchanged Ahead of Midterms

WASHINGTON — The US Federal Reserve is expected to leave interest rates unchanged on Wednesday during its final rate-setting meeting before next week’s midterm elections, keeping borrowing costs at one of the highest pre-election levels seen in over two decades.

The impending decision arrives as the economy emerges as the foremost issue for voters across multiple polls ahead of the upcoming legislative contests. While the central bank raised rates last month for the first time since 2023 in response to mounting inflation, most Fed economists currently predict one more rate hike before the end of the year, even as multiple Fed leaders suggest the central bank has room for a temporary pause.

Annualized inflation has hovered above the Fed’s target rate of 2% for most of the year, remaining above 3% and rising in September from 3.4% to 3.7%. Broader price pressures this year have been driven largely by conflict in the Middle East involving Iran, which led to the closure of the Strait of Hormuz and caused oil prices to soar. Oil traded briefly above $117 a barrel earlier in the week, marking its highest price in more than six months.

Federal Reserve Chair Kevin Warsh suggested at the September policy meeting that present-day inflation has persisted beyond the immediate conflict, noting that the previous rate hike was intended to prevent prices from creeping up further. Warsh stated that while the Fed cannot affect individual prices such as oil or foodstuffs, its task is to ensure that relative price changes do not broaden or generate second- and third-order economic effects.

Fed Governor Christopher Waller stated earlier this month that interest rate hikes do not need to occur at consecutive meetings, but should be implemented within an acceptable period of time.

The timing of this week’s meeting, sandwiched immediately before the midterm elections, has drawn commentary from economists regarding the limits of monetary policy. Nicholas Economides, an economics professor at NYU Stern Business School, stated that the close proximity of the election makes it unlikely the Fed will take radical action because the economy would not have sufficient time to adjust before voters go to the polls. Economides also stated that raising interest rates cannot solely address inflation caused by supply shocks and can prove counterproductive if demand is not outpacing supply.

Political figures have likewise weighed in on the central bank’s trajectory. Donald Trump stated that interest rates in the United States should be 1% or less.