The U.S. Federal Reserve is expected to adopt a status quo on policy rates this Wednesday as inflation continues to accelerate, largely due to rising energy prices.
The economic world expects the American Federal Reserve (Fed) to opt for a status quo on key rates on Wednesday, a few days before elections in the United States largely focused on inflation that the institution is responsible for combating. The monetary policy decision will be communicated at 6 p.m., and Fed boss Kevin Warsh will speak half an hour later. Investors think that the institution will take a break after having tightened the screw in September (by one notch to reach between 3.75% and 4%), and before deciding on a new increase during the last closed session of the year, at the beginning of December.
This choice may not be unanimous, as inflation has shown no sign of slowing down in the meantime. The rise in consumer prices even accelerated to 3.7% year-on-year, largely due to the energy shock that followed President Donald Trump's outbreak of war in the Middle East. The central bank of the world's largest economy apparently has free rein to calm inflation: activity remains solid, even if driven mainly by the boom around artificial intelligence, and unemployment is low.
The lack of movement “will require more communication from President Warsh at a press conference,” said EY economist Gregory Daco. Since taking the reins in the spring, Kevin Warsh has avoided explaining the mechanisms of monetary policy, confusing investors and analysts. “Warsh will have to avoid giving the impression that the decision is of a political nature, in one direction or the other, as the mid-term elections approach”, the partial legislative elections of November 3, continues Gregory Daco.
A monetary tightening, underlines the economist, could "appear as a measure taken against the Trump government", while a status quo risks being perceived "as a conciliatory attitude" towards it. Not "overplaying" the fight against inflation Donald Trump tirelessly calls for lower rates to stimulate the economy, deeming exaggerated the fear that this will fuel inflation, which has been higher than the Fed's objective (2%) for more than five years. When the central bank raised rates in September, for the first time since the summer of 2023, the president denounced a decision aimed at harming him before the elections.
Kevin Warsh escaped his wrath. Trump himself appointed him to head the monetary policy committee, which has twelve voters. Wendy Edelberg, a researcher at the Brookings Institution, thinks that the Fed prefers not to expose itself at this time.
Waiting six more weeks before raising rates "doesn't change things a lot economically," she said. On the other hand, this prevents monetary officials “from finding themselves at the heart of the political debate just before an election, which does no one any favors,” reasons Wendy Edelberg. The Fed announced in September “that it would fight inflation.
Those responsible are showing independence of mind but are not going to overplay this fight during the electoral period, also thinks Sam Stovall, analyst at the CFRA firm. During his victorious 2024 campaign, Donald Trump promised to improve purchasing power and plunge borrowing costs, in particular to allow as many Americans as possible to access the dream of the individual home. According to most economists, his policies (customs duties, war against Iran) have however had a direct impact on prices in the United States and prompted lenders to charge higher interest rates to prevent inflation from eating into their future earnings.
The presidential party risks losing control of Congress the day after November 3.
Machine-translated from French
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