Fed Set to Hold Rates Wednesday Despite Inflation Climb

The Federal Reserve is expected to leave its benchmark interest rate unchanged on Wednesday, even as consumer prices accelerated to 3.7% in September. Chairman Kevin Warsh will announce the decision at the conclusion of the two-day policy meeting, then take questions from reporters.

The central bank raised its key rate from about 3.6% to 3.9% last month, the first increase in three years. That move was widely read as the opening step of a renewed campaign against inflation. September's monthly consumer price index rose 0.3%, a pace that would push annual inflation well beyond the Fed's 2% target if sustained.

Inflation was 2.4% in February, just before the Iran war began. Energy costs have climbed since, and Bank of America head of U.S. economics Aditya Bhave said higher oil and gas prices are likely to keep price pressures elevated for several more months. Rising diesel costs lift shipping prices for nearly every category of goods, he said.

"Unless the Fed takes this problem more seriously and stops essentially making excuses about inflation, I think we're not going to get back to 2% until the next recession," Bhave said.

Borrowing costs are already climbing across the economy. The average 30-year mortgage rate hit 7.4% earlier this month, a three-year high, before easing slightly. Oxford Economics calculated that higher mortgage rates have put homeownership out of reach for 5 million more Americans since the start of the year.

President Donald Trump criticized the Fed after last month's rate increase, directing his remarks at the central bank's rate-setting committee rather than Warsh, whom he appointed. Warsh has signaled he wants inflation back at 2% on a "timelier" schedule.

The decision comes days before the midterm elections, where cost of living has dominated campaign discussion. Unemployment stands at 4.2%, and hiring is sluggish. Government data due Thursday is expected to show the economy grew 3% in the July-September quarter, up from 2.2% in the prior period, according to FactSet.

The Bank of Canada meets Wednesday and is forecast to raise its key rate by a quarter point to 2.5%. The European Central Bank and Bank of Japan meet Thursday and are both expected to hold rates steady.