The Federal Reserve is meeting this week in Washington to consider whether to raise interest rates in an effort to curb inflation.
The meetings come at a time when rising prices are influencing much of the U.S. economy and inflation is expected to play a key role in next Tuesday’s midterm elections.
Still, members of the bank’s interest rate-setting committee are widely expected to hold benchmark rates steady this month.
There are several reasons why the Fed is unlikely to change rates on Wednesday. Most of it boils down to a feeling among senior officials that the central bank should not rush into decisions on interest rates – and that it certainly should not do so with less than a week before Election Day.
“Inflation remains above our target,” Michelle Bowman, vice chair of supervision at the Fed, said on October 14. “We have some time to wait and see how financial conditions evolve before taking further action.”
The Fed last raised rates by a quarter of a percentage point in September, after a string of monthly inflation numbers well above its 2% target and no sign of a decline in prices in the near future.
“The fact is that inflation is too high and has been for too long,” Federal Reserve Chairman Kevin Warsh said at the time.
Inflation figures for September, released this month, underlined Warsh’s view, with the annual inflation rate rising to 3.7% from 3.4% the previous month.
Some analysts believe Warsh and the Fed will be taking a risk if they vote to hold rates, given the path of inflation.
“The arguments in favor of jumping (a rate hike) in October are not very convincing,” write Deutsche Bank analysts.
Fed officials, however, emphasize a fundamental principle of the dual mandate that Congress gave the Fed, that of promoting maximum employment while maintaining stable prices.
Specifically the “stable” part, which underpins the Fed’s slow, deliberative approach.
“I don’t think it’s urgent that we have to decide with a limited set of information,” San Francisco Fed President Mary Daly said in a recent interview. “I think we have the time we need.”
Another Fed guiding principle that likely tips the scales when it comes to expectations for Wednesday is its tradition of staying out of politics.
If the Fed were to raise rates just days before the midterm elections, it could, at best, risk looking like a politically motivated decision. At worst, it could influence citizens’ votes.
“We might imagine that, all things being equal, the Fed would prefer to stay away from the headlines in favor of raising rates just before a midterm election where affordability is the main concern,” Deutsche Bank analysts write.
Voters repeatedly told pollsters that rising prices, particularly in the housing and energy sectors, were their top concern when voting.
With control of the House and Senate at stake in Tuesday’s election, voters are clear who they blame for rising prices: President Donald Trump’s war in Iran and his global tariff regime.
The most recent NBC News poll found Trump’s approval rating was 27% for his handling of the cost of living and just 29% for his handling of the war with Iran.
Two-thirds of Americans said the surge in gas prices triggered by Trump’s war in Iran was either a “very serious” problem or a “somewhat serious” problem.
Likewise, more than half of those surveyed said current economic conditions have caused them to change the types of groceries they buy.
All of this adds up to a very difficult political environment for Trump’s fellow Republicans, who are struggling to balance their general support for him with the unpopularity of his policies with voters.
Even the Trump administration, which usually maintains an optimistic view of the economy and inflation, seemed concerned after the latest inflation figures released earlier this month.
“It’s a disappointing number,” said Kevin Hassett, director of the White House National Economic Council.
Asked by Fox Business hosts why voters had such a negative view of the current economy despite higher spending, Hassett wasn’t sure. “It’s a puzzle we think about every day,” he said.
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