December rate hike odds hit 75.1% as Fed expected to hold rates steady; Warsh may point to hikes

Decision arrives before elections

The Fed is due to announce its latest interest rate decision on Wednesday. The midterm elections are less than a week away, a timing that can make policymakers cautious about changing rates.

Fed policymakers say political considerations do not guide their monetary decisions. Even so, rate moves at meetings held shortly before an election can face a higher threshold. Federal Reserve Chair Kevin Warsh and other policymakers are expected to keep rates unchanged this week.

Inflation keeps pressure on

September consumer prices climbed 3.7% compared with a year earlier, exceeding the Fed’s 2% inflation target. The hotter reading raised the likelihood of an October rate increase. Heather Long, chief economist at Navy Federal Credit Union, said the latest inflation figures strengthened the case for a hike. But she described an increase so close to the election as a difficult decision for the Fed.

December hike remains possible

Long said gasoline prices have eased somewhat since their September highs. She expects October inflation data may be cooler, though she cautioned that it may not be reassuring enough to settle concerns.

Long said the Fed could wait several more weeks to assess whether price increases are widespread. In her view, policymakers may still raise rates, but a December move could give them more information.

Markets favor a pause

The CME FedWatch tool put the chance of rates staying within the current 3.75% to 4% target range at 90.6%. That estimate was 84.5% a week earlier and 35.8% a month earlier.

For the Fed’s mid-December meeting, the tool showed a 75.1% probability of a quarter-point increase. Such a move could restart rate hikes if inflation remains elevated.