Fed set to hold rates Wednesday as inflation runs above target
Consumer prices rose 3.7% in September while the average 30-year mortgage rate hit 7.4% earlier this month.
By Andrew Hayes ·
The Federal Reserve is expected to leave its benchmark short-term interest rate unchanged at its meeting Wednesday, even as consumer prices climbed 3.7% in September compared with a year earlier. Inflation was 2.4% in February, before the Iran war began driving up oil and gas prices.
The central bank's policy meeting wraps up less than a week before the midterm elections, where voters have focused on gas, grocery and clothing prices. The Fed raised its key rate last month from about 3.6% to 3.9%, the first increase in three years. President Donald Trump criticized the September decision, though he directed his remarks at the rate-setting committee rather than Chairman Kevin Warsh, whom he appointed.
Higher borrowing costs have already reached the housing market. The average 30-year mortgage rate touched 7.4% earlier this month, a three-year high, before slipping a bit. Oxford Economics, a consulting firm, said higher mortgage rates have put homeownership out of reach for 5 million more Americans since the start of the year. Unemployment stands at 4.2%, and FactSet forecasts 3% growth for the July-September quarter, up from 2.2% in the April-June quarter.
The consumer price index rose 0.3% in both August and September, a pace that would exceed the Fed's 2% target over a full year. A separate measure the Fed watches, the personal consumption expenditures price index, is forecast to show a 3.6% increase for September when it is released Thursday, up from 3.4% in August. Core prices excluding food and energy are forecast at 3.1%, up from 3%.
Aditya Bhave, head of U.S. economics at Bank of America, said economists and the Fed have grown too complacent about inflation above target. Higher oil and gas prices will keep inflation elevated for several more months, he said, and rising diesel costs will push up shipping prices for nearly every kind of good. "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.
Warsh will hold a news conference after the rate decision. He is expected to repeat the Fed's aim for a "timelier" return of inflation to 2%. The Fed's September press conference ran about 30 minutes. Warsh's predecessor, Jerome Powell, typically held sessions of around 45 minutes.
The Bank of Canada meets Wednesday and is forecast to raise its key rate a quarter point to 2.5%. The European Central Bank and Bank of Japan both meet Thursday and are expected to hold rates steady.
The Federal Open Market Committee's decision is scheduled for Wednesday.
