US Federal Reserve Expected to Hold Rates Steady Amid Midterm Elections

The US Federal Reserve is widely expected to keep interest rates steady in the 3.75%-4% range, just days ahead of the US midterm elections. While inflation remains elevated following September's rate hike—the first since 2023—futures markets price in a roughly 73% probability of a rate increase in December. The upcoming elections put the cost of living at the center of political debate, with 84% of voters citing it as a major concern.

Energy prices, driven by supply disruptions and geopolitical tensions, continue to fuel inflationary pressures. Brent crude reached $115 per barrel, while consumer prices rose 0.6% in September, pushing annual inflation to 3.7%. Core inflation stood at 2.6%, and gasoline prices surged by 9.1% in a single month. Analysts note that these inflation drivers, including energy costs and artificial intelligence investments, are largely unresponsive to monetary policy, complicating the Fed's path forward.

Federal Reserve Chair Kevin Warsh, appointed by President Donald Trump, recently described September's hike as removing monetary accommodation. Meanwhile, economists at BNP Paribas and other major financial institutions suggest that further tightening could be on the horizon. Trump criticized the central bank following the recent decisions, pointing to a hostile board while maintaining focus on upcoming legislative dynamics.

Global spillover effects are already visible, including in Israel, where the Bank of Israel recently held its benchmark interest rate at 3.25%. Experts from Meitav and Altshuler Shaham note that global monetary tightening and energy price surges constrain local policy flexibility, while currency exchange rates remain a key transmission channel for imported inflation.