Fed Holds Rates Wednesday With December Hike Priced In

The Federal Reserve will announce its rate decision Wednesday with inflation running at 3.7% and midterm voting days away. CME Group's FedWatch Tool puts the odds of a hold at about 90%. The same tool puts the odds of a quarter-point increase at the December meeting at 75%. The central bank's benchmark rate currently sits between 3.75% and 4%.

The Fed raised rates by a quarter point last month, its first increase in three years. Inflation has climbed since, reaching a four-month high in September as fuel prices rose on unrest in the Middle East. The Bureau of Labor Statistics reported a 3.7% year-over-year increase in September prices, more than a percentage point above the Fed's 2% target.

The labor picture shifted the same month. Employers added 29,000 jobs in September, down from 162,000 in August, according to the BLS. The figure came in below economists' forecasts. Bank of America Global Research outlined the bind in a memo to clients last week: "If the Fed hikes, investors might worry about overtightening. If the Fed holds, markets could question the Fed's inflation-fighting credibility."

President Donald Trump has criticized rate increases across both terms in office. Hours after last month's hike he posted: "LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!" Congress established the Fed as an independent institution, and past presidents have also sought to steer its rate policy. Deutsche Bank Research wrote in a memo that the midterms could factor into a decision to hold, though the election would not be a "primary consideration." The firm added: "We could imagine that all else equal the Fed might prefer to stay out of the headlines for raising rates just ahead of a midterm election where affordability is the principal concern."

After Wednesday's decision, the next scheduled Fed meeting is in December. CME Group's tool prices a quarter-point increase at that session at 75%. The Fed's rate stands above the 0% level set at the start of the COVID-19 pandemic and below the peak reached in 2023.