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The Federal Reserve is expected to keep interest rates steady Wednesday as policymakers deliver their final rate decision before the midterm elections. The announcement comes less than a week before voters head to the polls.

Fed policymakers say political considerations do not influence their monetary policy decisions. Even so, officials can be hesitant to raise or lower rates during meetings held shortly before an election.

The decision arrives as inflation continues to run well above the central bank’s stated goal. September’s consumer price index rose faster than expected, increasing 0.6% from the prior month and 3.7% from a year earlier.

That annual inflation reading remains far above the Fed’s 2% target. The hotter data increased the possibility of another October interest rate hike, though expectations continue to favor no change this week.

Heather Long, chief economist at Navy Federal Credit Union, told FOX Business that the central bank is more likely to wait until December before raising rates again. She said acting within a week of the election would require clearing a very high bar.

“Right now, this data indicates that the Fed needs to act again, but it's not a five-alarm fire. They don't have to act immediately, they could wait until December.”

Long pointed to lower gas prices since their September highs as one reason October inflation data could prove somewhat cooler. That could give policymakers additional time to determine how widely inflation pressures are spreading through the economy.

“The reality is, gas prices have come down a little bit since the September highs, so we would expect the October data – you know, it won't be great, but it could be a little bit cooler than what we're seeing today. And the Fed has a reasonable case to say, we're probably still gonna hike, but let's wait a few more weeks and see just how broad-based this problem really is,” Long said.

Markets are overwhelmingly positioned for the Fed to leave its current target range unchanged at 3.75% to 4%. The CME FedWatch tool puts the probability of rates remaining steady at 90.6%.

That probability has risen sharply from 84.5% one week earlier and 35.8% last month. The movement indicates that market expectations have increasingly settled on a pause at this week’s meeting.

Attention is already shifting to the Fed’s meeting in mid December. The CME FedWatch tool shows a 75.1% probability of a 25 basis point increase, which could restart the rate hiking cycle if inflation stays elevated.

“The Federal Reserve will definitely hike interest rates again, probably in December,” Long said. “The big question is how many more times do they have to hike after that? And what was scary in this latest inflation data for September is to see so many areas of hot inflation: to see used car prices, airfares, recreation costs, auto repair costs, buying a used car, medical costs.”

Those categories suggest inflation pressure is appearing across numerous parts of consumer spending, according to Long’s assessment. The breadth of the September readings could keep the Fed focused on further tightening beyond a possible December move.

“The story really is starting to take shape that it's probably going to take a couple more hikes in 2027, and this higher-for-longer borrowing costs and mortgage rates well above 7% is going to stick around for at least a year, maybe longer,” Long said.

Markets are also pricing in the possibility of multiple increases by March. The CME FedWatch tool shows a 46.5% chance that rates will stand 50 basis points above their current level, placing the target range at 4.25% to 4.5%.

For now, the dominant expectation is that Federal Reserve Chair Kevin Warsh and other policymakers will hold their ground this week. Persistent inflation, a possible December hike and expectations for additional tightening in 2027 remain central to the rate outlook.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.