Fed Rate Hold Expected Ahead of Meeting as Inflation Stands at 3.7%

Key Facts

The Federal Reserve began its meeting on October 27 and 28, with investors awaiting the interest rate decision and officials’ assessment of the inflation outlook. The Fed was expected to leave rates unchanged on Wednesday, according to the Associated Press, despite faster inflation in recent months. The meeting follows the Fed’s quarter-point rate increase in September, which brought the target range to 3.75%-4.00%. The statement and press conference are scheduled for October 28, according to the Fed’s calendar. The decision carries added weight as energy prices rise and inflationary pressures persist, while markets continue to watch for signals on December.

The latest price data show an acceleration in headline inflation: the Consumer Price Index rose 0.6% in September, after a 0.4% increase in August, and was up 3.7% year over year. The core index, which excludes food and energy, also rose 0.3% monthly and 2.6% annually in September. The Associated Press linked the pickup in inflation to higher oil and gas prices tied to the Iran war. In estimates cited by the news agency, personal consumption expenditures inflation was expected to reach 3.6% in September, up from 3.4% in August, while core inflation was expected to reach 3.1%, up from 3%. The Federal Open Market Committee’s inflation target remains 2%, according to its September statement.

Beth Hammack, president of the Federal Reserve Bank of Cleveland, said price pressures are “fairly broad and not concentrated in one component.” The assessment suggests that higher energy costs are not the only focus of the inflation debate. The September statement described economic activity as expanding at a solid pace and said domestic spending had remained resilient despite ongoing uncertainty, partly related to geopolitical developments. At the same time, the Fed said inflation remained elevated and that its decision was aimed at supporting a timely return to its 2% target. Together, these factors set the backdrop for the October meeting: steady growth alongside persistent price pressures.

On the activity side, the unemployment rate stood at 4.2% at the time of the Associated Press report, while FactSet expected the economy to grow at an annual rate of 3% in the third quarter, up from 2.2% in the second quarter. But hotter price indicators heightened investors’ focus on what the Fed would say about its next steps. The Associated Press reported that markets saw little chance of a rate hike in October after senior officials tempered expectations of another increase. Fed Vice Chair Philip Jefferson said the rise in long-term market interest rates meant officials “will need more time to form their judgment.” That puts expectations for a hold against a more challenging inflation backdrop than in the preceding period.

U.S. stocks rose in Tuesday’s session on October 27, with the S&P 500 up 0.6% and the Nasdaq up 1.2%, while Treasury yields were relatively steady ahead of the Fed’s decision, according to the Associated Press. After the statement, attention will turn to Fed Chair Kevin Warsh’s remarks for signals on the outlook for policy. The news agency reported that Wall Street investors broadly expect a rate hike at the December meeting. An Axios analysis also said the bank’s leadership leaned toward leaving rates unchanged in October while keeping another increase in December among the possibilities. The October meeting comes less than a week before the U.S. midterm elections, where concerns have centered on the cost of living and affordability.

Data releases will continue to draw attention after the meeting: the Bureau of Labor Statistics has set November 10 as the release date for the October Consumer Price Index. The Fed will then publish the minutes of its October 27 and 28 meeting on November 18, according to its official calendar. The committee’s next meeting is scheduled for December 8 and 9, with a press conference on December 9. The data and minutes will give investors a way to track price developments and what officials discussed ahead of the December meeting. The October decision itself had not been released when this story was prepared.