Fed likely to go into wait-and-see mode on rates
TLT•The Federal Reserve is expected to hold its benchmark rate at 3.75%-4.00% on Wednesday, with investors pricing about a 90% chance of a pause. Policymakers are weighing persistent inflation and the prospect of further rate increases.
1. Expected rate pause
The Federal Reserve is expected to leave interest rates unchanged on Wednesday, less than a week before the US midterm elections. Officials had signaled they could be patient after raising rates by a quarter of a percentage point last month, and investors see about a 90% chance of a pause.
2. Inflation remains persistent
Initial estimates indicate the September Personal Consumption Expenditures Price Index and related measures rose and remain at 3% or higher on an annualized basis. The September PCE report is due Thursday, after the policy meeting concludes. Oil prices have risen about 20% since the start of September to around $114 a barrel, while diesel prices are near record highs.
3. Focus on future increases
Markets are focused on the pace and extent of future rate increases as inflation remains strong. Economists and policymakers cite energy costs, tariffs, demand from the artificial intelligence industry and consumer spending as inflation drivers. Monetary Policy Analytics economist Derek Tang said his firm expects three more quarter-percentage-point increases in coming meetings, in line with market expectations of quarterly hikes through June 2027.
