What to expect from the Fed as Warsh weighs hot inflation, oil and US midterms

When the Federal Reserve announces its decision at 19:00 CET on Wednesday, it is widely expected to leave its benchmark rate unchanged at 3. 75% to 4%, less than a week before Americans vote in the midterms. However, with inflation at 3.

7%, energy prices at the highs and another hike in December seen as likely, investors will be watching Fed Chair Kevin Warsh closely for clues about what comes next. Markets put the chance of a hold at over 90%, but see a 73% chance of a quarter-point hike at the Fed's 8-9 December meeting, according to CME Group's FedWatch tool, which tracks interest rate futures. That would follow September's increase, the Fed's first in three years.

Since then, several senior officials have played down the urgency of moving again. Vice Chair Philip Jefferson pointed in a speech to the jump in longer-term borrowing costs, adding that "my colleagues and I will need to come to our own judgment, which may take more time". New York Fed President John Williams reiterated the same sentiment in a speech at the University at Buffalo stating that "there is no need for urgency".

Politics looms too. "The Fed doesn’t want to poke the White House in the eye six days before an election,” said Joseph LaVorgna, chief economist at Japanese bank SMBC's US arm and a former Trump administration official. Not everyone may go along.

Cleveland Fed President Beth Hammack and Dallas Fed President Lorie Logan, who both say rates are not yet high enough to cool inflation, could vote for a hike, and as many as three officials could dissent. Inflation runs hot as growth holds upThe case for tighter policy remains. US consumer prices rose 3.

7% in September from a year earlier, up from 3. 4% in August, while core inflation, which strips out food and energy, rose to 2. 6%.

Wholesale prices jumped 6. 3%. Chicago Fed President Austan Goolsbee stated the reading was "discouraging", saying underlying inflation at today's level was "not acceptable".

Petrol, which has topped $4 a gallon for the past three months, accounted for over half of September's price increase, according to the US Labor Department. Diesel hit a record $6. 53 a gallon in late September, raising the cost of shipping almost everything.

Brent crude, the global oil benchmark, fell over 6% on Monday, from about $117. 4 a barrel, its highest close since 19 March, as diplomacy over the Iran war seemingly gathered pace. At the time of writing on Tuesday, it traded at roughly $110.

8 a barrel, still far above the $72 it fetched before the Iran war began in late February. Borrowing costs are biting too. The average 30-year US mortgage rate hit 7.

4% in early October, a three-year peak, before easing to 7. 32% last week, against just under 6. 2% a year ago.