Federal Reserve to Announce Interest Rate Decision This Week

Most economists and Wall Street analysts expect the Federal Reserve to maintain its benchmark interest rate at 3.75% to 4% this week. Central bankers will meet to consider whether to raise rates for a second time this year to curb inflation. The Fed will publish the policy statement and announce the rate decision on Wednesday at 2 p.m. ET.

U.S. headline inflation reached an annual rate of 3.7% in September as energy prices climbed. Core inflation, which excludes the volatile energy and gas categories, increased 2.6% from a year earlier amid indications that inflation could be spreading more broadly. The Fed's annual inflation target is 2%. Gasoline has cost more than $4 a gallon for the past three months. The Labor Department said gasoline accounted for over half of September's increase in consumer prices.

Capital Economics senior North America economist Thomas Ryan said recent high inflation readings and rising inflation expectations would worry Fed officials. Ryan said officials nevertheless appeared largely committed to increasing rates gradually. In September, the Fed increased the federal funds rate by a quarter of a percentage point, the first increase in three years. The federal funds rate is the rate banks charge other banks for overnight borrowing. The September increase pushed borrowing costs higher throughout the U.S. economy.

The meeting takes place before Americans vote in the November 3 midterm elections. Many Americans have voiced dissatisfaction with the economy while facing higher gasoline, food, utility and other costs. Most economists and investors expect one further rate increase before year-end, probably at the year's final meeting on December 8-9. CME Group's Fed Watch tool puts traders' estimated probability of unchanged rates in October at 88%. The tool puts traders' estimated probability of a December rate increase at 71%. The tool derives rate-decision probabilities from 30-day federal funds futures prices. The Fed has no November meeting scheduled.

The Fed's quarterly projections last month indicated that the rate-setting committee expected another increase later this year. However, some Fed policymakers have indicated that further increases in borrowing costs are not urgent. New York Fed President John Williams said after September's increase that the policy action allowed officials time to collect more information without urgency.

Fed Chairman Kevin Warsh will hold a press conference following this week's decision. Investors are unlikely to receive clues from Warsh before then. Warsh has opposed providing forward guidance about rate decisions.