US Federal Reserve expected to hold rates despite rising inflation in September

Expectations for a US interest rate hike have grown after September inflation data came in higher than forecast, with progress toward the Federal Reserve’s 2% target stalling since early 2023.

Nevertheless, investors widely expect the Federal Reserve to keep rates unchanged in the 3.75% to 4% range at Wednesday’s meeting, after senior officials signaled following September’s hike that there was no rush for another increase.

Comments from Federal Reserve Chair Jerome Powell have reinforced these expectations, with the likelihood of an October rate hike falling to around 15%, less than a week before the US midterm elections.

However, some economists warn that delaying a hike until December could risk the Fed falling behind in tackling inflation, while other officials prefer to wait and assess further data to avoid triggering additional market volatility.

The decision is further complicated by the ongoing boom in artificial intelligence investment, which is supporting US economic resilience, alongside rising energy costs, tariffs, and supply chain pressures.

Investors now expect a rate hike in December, with some analysts adding another increase in early 2027 to their forecasts following the latest inflation figures.