Fed expected to hold rates steady as oil hits six-month high

The Federal Reserve is expected to leave interest rates unchanged on Wednesday. This decision will conclude the last rate-setting meeting before the midterm elections next week. The move will keep borrowing costs at one of the highest levels seen before an election in more than 20 years.

Fed officials raised rates for the first time since 2023 last month. They cited rising inflation as the primary driver for the increase. Inflation has remained above the central bank's 2% target for several years. For most of 2026, the annualized inflation rate has stayed above 3%.

Prices accelerated in September, rising to 3.7% from 3.4% in August. A pause in rate changes would indicate a wait-and-see approach by the central bank ahead of the vote. Multiple Fed leaders have suggested in recent weeks that the bank has room to hold steady, even though most Fed economists predict one more hike before the end of the year.

Christopher Waller, a Fed governor, stated earlier this month that hikes do not need to occur at consecutive meetings. He added that they should be in place within an acceptable period of time. Nicholas Economides, a professor of economics at the NYU Stern Business School, noted that the proximity of the election makes radical action less likely.

"Even if the Fed were to do something radically different, the economy would not have time to adjust before the elections," Economides said. He argued that raising rates is often counterproductive when inflation is caused by supply factors rather than high demand.

Rising prices this year have been driven largely by the war in the Middle East with Iran. Oil prices soared following the closure of the strait of Hormuz, a key trade passageway. Oil traded briefly above $117 a barrel earlier this week, its highest price in more than six months. Inflation reached its highest level since the spring last month.

Donald Trump expressed frustration with the current levels, stating that "interest rates in the United States should be 1% or less." The high cost of living is expected to influence the upcoming midterm elections. Across multiple polls, the economy has been cited as the top issue for voters.

Fed chair Kevin Warsh suggested that present-day inflation has persisted beyond the initial war impact. He said the central bank raised rates to prevent prices from creeping up further. Warsh told the Fed's September meeting that the bank cannot affect individual prices like oil or foodstuffs. However, he said the bank will ensure changes in relative prices do not broaden out to have second and third-order effects on the economy.