Fed is widely expected to hold rates steady despite a case for hiking

The Federal Reserve is expected to leave interest rates unchanged at its meeting this week, although September inflation data strengthened the case for another increase, according to The Wall Street Journal. The Federal Open Market Committee will announce its decision at 2 p.m. ET on Wednesday, according to AFP.

The central bank raised its target range for the federal funds rate to 3.75% to 4% at its September meeting. Both the consumer and wholesale inflation figures for September surpassed forecasts. That puts the central bank's favored price measure on course to show no additional movement toward its 2% target.

Fed Chair Kevin Warsh did not address the latest inflation data when he spoke publicly on Oct. 16, according to The Wall Street Journal. He characterized the economy as having "broadly conformed" with what officials anticipated when they met in September. Odds of a hike this month then dropped to roughly 15%, based on fed funds futures trading, according to The Wall Street Journal.

A hike would arrive within a week of the Nov. 3 midterm elections. "The way it's set up right now, the path of least resistance is to do nothing," said Robert Kaplan, a former Dallas Fed president who is vice chairman at Goldman Sachs $GS, according to The Wall Street Journal.

Some economists favor moving now. "If you just used risk management and you looked at the data, they want to be hiking this week," said Claudia Sahm, a former Fed economist, according to The Wall Street Journal.

Loretta Mester, a former president of the Cleveland Fed, said the election timing would not factor into policymakers’ thinking, according to AFP. “The economics would suggest then you need to continue raising rates,” she said. Mester added that the majority of policymakers appeared reluctant to move too fast and might hold off until the early December meeting.

Officials are divided on how far rates need to rise, according to The Wall Street Journal. Dallas Fed President Lorie Logan has said rates must climb at least 0.5 percentage point further. Cleveland Fed President Beth Hammack has argued for smaller adjustments made quickly. Both dissented at the July meeting, when the Fed held rates, preferring an increase, as did Minneapolis Fed President Neel Kashkari. A hold on Wednesday might prompt those same officials to dissent again.

Markets anticipate a rate hike from the Fed in December, according to The Wall Street Journal. If the Fed holds this week, focus will turn to Warsh's explanation of the decision during his press conference.