Fed expected to hold rates steady days ahead of U.S. midterms

The U.S. Federal Reserve appears set to hold interest rates steady at its meeting next week, analysts say, despite stubbornly high inflation and with markets pricing in at least one rate hike before year-end.

The central bank’s Federal Open Market Committee (FOMC) will meet over two days, announcing its decision at 2:00 pm local time (18:00 GMT) on Wednesday.

The Fed has missed its long-term two-percent target for inflation for more than five years, and at its last meeting in September the FOMC voted to raise the key federal funds rate for the first time in three years, lifting the target range to 3.75 percent to 4.0 percent.

The Fed’s meeting comes days ahead of key midterm elections in the United States on November 3, with the Democratic Party seeking to wrest control of both houses of Congress from U.S. President Donald Trump’s Republicans.

Trump frequently berated and criticized Fed Chair Kevin Warsh’s predecessor Jerome Powell over interest rates -- which he deems to be too high -- but has so far refrained from targeting the man he appointed to replace him over the issue.

The Fed’s preferred gauge for inflation, the Personal Consumption Expenditures (PCE) price index, hit a pandemic-era peak of 7.2 percent in 2022, before a series of interest-rate hikes tamed it to around 2.2 percent by late 2024.

Trump’s economic policies -- including his upending of the global trade order using tariffs and his war on Iran -- fuelled it once more, and it hit a three-year high of 3.9 percent in May.

Since the United States and Israel attacked Iran in late February, global energy prices have skyrocketed, with Tehran’s retaliatory actions sharply curtailing oil and gas supplies through the Gulf.

Higher energy prices have begun to cascade through into other goods and services, fuelling inflation in the United States, with prices a key issue for voters as they head to the polls.

Loretta Mester, former regional head of the Cleveland Fed, told AFP that the timing of the meeting just days ahead of the election would not be a factor for policymakers.