What To Expect From Wednesday’s Federal Reserve Meeting

Key Takeaways

• The Federal Reserve’s policy committee is likely to keep its key interest rate flat when it meets to set monetary policy on Wednesday.

• Economists expect the Fed to raise interest rates at future meetings to combat high inflation, but say there is no rush to raise them for a second consecutive meeting following September’s rate hike.

• Higher interest rates push up borrowing costs on all kinds of loans and can dampen inflation but risk slowing down the economy.

Federal Reserve officials are widely expected to leave the central bank’s key interest rate unchanged when they meet on Wednesday, signaling patience in their fight against inflation.

Financial markets were pricing in a one-in-ten chance that policymakers on the Federal Open Market Committee will vote to raise the fed funds rate by a quarter-point when they meet Wednesday, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.

In recent weeks, Fed officials have publicly discussed whether to follow up on September’s quarter-point rate hike to counter higher-than-expected inflation. Although some Fed officials have voiced concerns, others have advocated a wait-and-see approach.

A higher fed funds rate means higher borrowing costs on all kinds of loans, which could discourage spending and subdue inflation. But it could also drag on the job market and the economy overall.

The Fed is balancing its dual mandate from Congress to keep inflation low and employment high. With inflation running above the Fed’s inflation goal for a fifth year and unemployment hovering near historic lows, most experts expect the Fed to raise interest rates again in December even if they forego an October hike.

“All signs are that the Federal Reserve will need to continue lifting interest rates in the near term, yet comments from a few key officials suggest they’re unlikely to do so at the October policy meeting,” Michael Pearce, chief U.S. economist at Oxford Economics, wrote in a commentary.

What This Means For The Economy

If the Fed pauses its rate hike campaign in October, it would allow officials more time to assess how much the Iran war’s fuel price hikes are pushing up inflation before taking action again.

Recent comments from two key FOMC members—Fed Governor Michelle Bowman and John C. Williams, president of the Federal Reserve Bank of New York—suggested they didn’t favor rate hikes at back-to-back meetings.

The recent Fed remarks indicated that most officials will support hiking rates by a quarter point at every other meeting, which would mean the next two rate hikes will take place in December and March, David Mericle, chief U.S. economist at Goldman Sachs, wrote in a commentary.

Aside from the interest rate decision, the main point of interest from the Fed meeting Wednesday will be Chair Kevin Warsh’s press conference. If he sticks to form, however, he will avoid giving hints about future monetary policy decisions. Unlike previous Fed chairs, Warsh has stuck to a policy of not giving “forward guidance” to financial markets.

Still, Warsh’s words, however cryptic, could offer some clues.

“Chair Warsh is unlikely to offer any direct forward guidance in his press conference, but we expect he will implicitly endorse a December rate hike,” Ruchir Sharma, an economist at Nomura, wrote in a commentary. “His characterization of recent inflation data and market financial conditions could provide some clues around the threshold for additional tightening in 2027.”

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