Fed to Hold Rates Steady Days Before Midterms

The Federal Reserve is expected to hold interest rates unchanged on Wednesday, in its final rate-setting decision before next week's midterm elections — with rates sitting at one of the highest pre-election levels in more than 20 years.

The pause follows a September hike, the first since 2023, which the Fed justified by citing rising inflation. The annualized rate has stayed above 3% for most of this year, against the central bank's 2% target. In September, inflation climbed from 3.4% in August to 3.7%.

What does the hold mean for borrowers?

Interest rates set the cost of borrowing across the economy — credit cards, mortgages and some savings accounts. When inflation runs hot, raising rates can slow price increases by dampening demand.

For households, a hold means no immediate relief on debt costs, but no fresh squeeze either. The practical takeaway: loan and mortgage pricing stays near current elevated levels through the election.

Why the Fed is pausing now

Multiple Fed leaders have signaled in recent weeks that the central bank has room to stand pat. Most Fed economists still predict one more hike before the end of the year, according to the source's account of internal forecasts.

"The hikes do not need to come at consecutive meetings, but they should be in place in an acceptable period of time," Fed governor Christopher Waller said earlier this month.

The election calendar is doing quiet work here. The Fed's proximity to the vote makes it more likely the central bank will "not take any radical action," said Nicholas Economides, a professor of economics at NYU Stern Business School.

"Even if the Fed were to do something radically different, the economy would not have time to adjust before the elections," Economides said.

The skepticism is warranted: a pause two months after a hike is a wait-and-see posture, not a signal that the tightening cycle is over. Waller's own words leave the door open to another move within months.

What is driving inflation this time?

The proximate cause is not domestic demand but war in the Middle East with Iran. Oil prices have soared following the closure of the Strait of Hormuz, a crucial passageway for global trade. Oil traded briefly above $117 a barrel earlier this week — its highest price in more than six months. September's inflation reading was the highest since spring.

That distinction matters, Economides argued, because rate hikes target demand, not supply shocks. Raising rates works when the economy runs too hot, but can backfire when the problem is constrained supply.

"If inflation is caused by supply factors, it doesn't make sense to try to cure it by increasing interest rates because it won't work," he said. "It will slow down the economy at a time in which you don't want it to slow down."

How the Fed chair frames the risk

Fed chair Kevin Warsh has pushed back on the supply-shock argument, suggesting inflation has persisted beyond the war itself. The September hike, in his telling, was preventive — designed to stop price pressure from broadening.

"We cannot affect any individual price, whether it be oil prices, whether it be foodstuffs at the grocery store," Warsh said at the Fed's September meeting.

"But what we can do, and will do, is ensure that any change in relative prices don't broaden out, don't have second and third-order effects on the economy. That's what we're tasked to do, and that's what we will do."

Note what Warsh did not say: he offered no timeline for when the tightening campaign ends, and no commitment that Wednesday's pause holds beyond one meeting.

The political weight of the decision

The cost of living is expected to play a decisive role in the midterms, which will determine control of Congress. Across multiple polls, voters have cited the economy as their top issue.

Donald Trump has already attacked the Fed's stance, saying that "interest rates in the United States should be 1% or less" — a level that would sit far below the current range and, in most economists' view, well below what 3.7% inflation would justify.

The Fed now holds its fire, but the underlying arithmetic is unforgiving: inflation at 3.7%, oil above $117, and at least one more hike projected before year-end — meaning Wednesday's calm is a pause, not a pivot.