WASHINGTON — The Federal Reserve is widely anticipated to leave interest rates untouched following its policy meeting this week, providing a brief pause for consumers already grappling with high borrowing costs and resurgent energy expenses.
Central bankers will conclude their two-day meeting on Wednesday at 2 p.m. Eastern time, marking their final interest rate determination before the Nov. 3 midterm elections. Wall Street investors and economists overwhelmingly predict officials will keep the benchmark federal funds rate at 3.75% to 4%, according to reports from CNBC and CBS News.
Energy Costs Complicate the Inflation Outlook
The rate decision follows a quarter-point rate increase in September, which marked the central bank’s first rate increase in three years. While policymakers have sought to cool price spikes, the consumer price index increased at an annual pace of 3.7% in September, driven largely by pump prices exceeding $4 a gallon amid the U.S. conflict with Iran, CBS News reported.
Core inflation, which strips out volatile food and fuel categories, climbed 2.6% over the past year. Federal Reserve Chairman Kevin Warsh has reaffirmed his intention to push annual inflation back to the central bank’s 2% objective. However, Heather Long, chief economist at Navy Federal Credit Union, told CNBC that officials are unlikely to alter rates right before voters head to the ballot box.
Futures tracked by CME Group’s FedWatch tool indicate less than a 10% chance of a rate increase on Wednesday, though nearly three-quarters of investors anticipate another hike at the December meeting, CNBC reported.
What a Rate Pause Means for Household Finances
Even without a new rate increase this week, borrowing costs are expected to stay near multiyear highs across several sectors of the economy:
- Credit cards: Because credit card interest rates fluctuate in tandem with the central bank’s benchmark rate, annual percentage rates will likely stay elevated. The typical rate on newly offered credit cards stands at 23.96%, according to LendingTree data cited by CNBC.
- Home mortgages: Long-term borrowing costs are tied more closely to the 10-year Treasury yield, which has hovered near 5%. The average 30-year fixed home mortgage rate remains near 7.4%, Mortgage News Daily reported, depressing home purchases and refinancing.
- Auto financing: Elevated vehicle loan rates continue to squeeze prospective car buyers, prompting many to accept bigger principal balances and longer repayment schedules to afford monthly bills, according to automotive researcher Edmunds.
- Savings accounts: In a silver lining for savers, yields on deposit products such as high-yield savings accounts remain near their highest levels in years.
Debate Grows Over Year-End Strategy
Some prominent economists argue the central bank should refrain from additional tightening. Mark Zandi, chief economist at Moody’s Analytics, cautioned on social media that elevated bond yields are already restricting economic growth and that further rate hikes cannot resolve war-induced energy shortages, Business Insider reported.
“Bond investors are already doing the Fed’s work for it,” Zandi wrote, warning that raising rates further risks pushing a vulnerable economy off course.
Conversely, Bank of America economist Aditya Bhave told CNBC that holding rates steady could cause financial markets to question the central bank’s determination to tame inflation. What remains uncertain is whether third-quarter economic growth data scheduled for release Thursday will prompt Chairman Warsh and fellow policymakers to push borrowing costs even higher at their final meeting in December.
