Fed Committee Expected to Forego Rate Hike in October

The Federal Open Market Committee opens its October meeting on Tuesday, with most analysts predicting Fed policymakers will keep the key interest rate flat when they meet Wednesday to vote on monetary policy.

According to Investopedia, economists expect the central bank to raise interest rates at future meetings to tackle high inflation. There is no immediate need to raise them again at its next meeting after September’s rate hike.

The Fed meeting comes just days before the Nov. 3 midterm elections in which affordability and the economy are central issues.

Fed officials are widely expected to leave the central bank’s key interest rate unchanged when they meet on Wednesday, signaling patience in their fight against inflation, Investopedia noted.

Fed Officials Voice Concern

In recent weeks, Fed officials have publicly talked about whether to follow up on September’s quarter-point rate hike to counter higher-than-expected inflation. Although some Fed officials have voiced concerns, others have advocated a wait-and-see approach, Investopedia reported.

A higher fed funds rate translates to higher borrowing costs on all kinds of loans. That could discourage spending and subdue inflation. But it could also drag on the job market and the economy overall, Investopedia noted.

“The Fed doesn’t control mortgage rates, a reality underscored by the central bank’s move in mid-September: The Fed raised its benchmark rate a quarter point, and mortgage rates jumped three-quarters of a point in a month. The lesson? Mortgage rates move with 10-year Treasury yields, not the federal funds rate,” Bankrate’s Housing Market Analyst Jeff Ostrowski said.

The central bank is balancing its dual mandate from Congress to keep inflation low and employment high.

With inflation running above the Fed’s inflation goal for a fifth year and unemployment hovering near historic lows, most experts expect the Fed to raise interest rates again in December even if they forego an October hike, Investopedia noted.

“All signs are that the Federal Reserve will need to continue lifting interest rates in the near term, yet comments from a few key officials suggest they’re unlikely to do so at the October policy meeting,” Michael Pearce, Chief U.S. Economist at Oxford Economics, wrote in a commentary.

Time to Assess

Investopedia Finance noted that should the Fed pause its rate hike campaign in October, it would allow officials more time to assess how much the Iran war’s fuel price hikes are driving up inflation before taking action again.

Recent comments from two key FOMC members, Fed Governor Michelle Bowman and John C. Williams, President of the Federal Reserve Bank of New York, suggested they didn’t favor rate hikes at back-to-back meetings.

The recent Fed remarks showed that most officials will support hiking rates by a quarter point at every other meeting, which would mean the next two rate hikes will take place in December and March, David Mericle, Chief U.S. Economist at Goldman Sachs, wrote in a commentary.

Aside from the interest rate decision, Investopedia noted that the main point of interest from the Fed meeting Wednesday will be Chair Kevin Warsh’s press conference. Likely, Warsh will avoid giving hints about future monetary policy decisions.

Warsh’s Comments

Unlike previous Fed chairs, Warsh has stuck to a policy of not giving “forward guidance” to financial markets.

Warsh’s words, even if they’re cryptic, could offer some clues.

“Chair Warsh is unlikely to offer any direct forward guidance in his press conference, but we expect he will implicitly endorse a December rate hike,” Ruchir Sharma, an Economist at Nomura, wrote in a commentary. “His characterization of recent inflation data and market financial conditions could provide some clues around the threshold for additional tightening in 2027.”