Fed Expected to Hold Interest Rates Steady as Inflation Concerns Mount

The US Federal Reserve (Fed) is expected to keep interest rates unchanged at 3.75%–4.00%. However, rising energy prices, strong consumer demand and the artificial intelligence boom are fueling concerns about inflation.

The US Federal Reserve is expected to leave interest rates unchanged at the conclusion of its two-day policy meeting on October 28. Investors assign approximately a 90% probability to this scenario.

According to Reuters, market participants are now focusing less on the immediate decision to hold rates steady and more on the direction of monetary policy in the coming months. The Fed is expected to maintain its benchmark interest rate within the current range of 3.75%–4.00%. The decision will come less than a week before the US midterm elections on November 3. The elections will determine whether Republicans retain control of Congress or Democrats gain control of one or both chambers of the legislature.

Persistent Inflation Remains a Key Concern

One of the main factors influencing the Fed's decision is that inflation remains above its target. Compared with the central bank's 2% inflation target, the annual increase in the Personal Consumption Expenditures (PCE) Price Index is expected to remain around 3% or higher.

The PCE report for September is scheduled to be released one day after the policy meeting concludes. However, Fed officials are reportedly already in possession of sufficient preliminary data to make their decision.

Inflationary pressures are not limited to rising energy prices and the impact of tariffs. Strong consumer spending and demand driven by the artificial intelligence sector are also contributing to price increases. Some Fed policymakers are concerned that inflationary pressures are spreading to a broader range of sectors across the economy. This could keep the possibility of further interest rate increases on the table.

Oil and Diesel Prices Add to Inflationary Pressures

Developments in energy markets are further intensifying inflation risks. According to the report, global oil prices have risen by approximately 20% since early September, reaching around $114 per barrel. Diesel prices, which are particularly important for industries such as agriculture, construction and transportation, are also approaching record levels. Higher fuel costs could

increase companies' production and transportation expenses, potentially pushing up prices for other goods and services.

Meanwhile, the rapid expansion of the artificial intelligence sector is creating a new challenge for the Fed. Although the technology has the potential to boost productivity over the long term, strong demand for AI-related products and services could currently become another source of inflation.

Markets Assess the Prospect of Future Rate Hikes

Dario Perkins, managing director of global macroeconomics at TS Lombard, believes that the Fed could be forced to raise interest rates several times in the future unless a significant downturn occurs in the artificial intelligence sector. Derek Tang, an economist at

Monetary Policy Analytics, also emphasizes that the breadth and persistence of inflation will play a crucial role in the Fed's upcoming decisions. According to his assessment, the central bank could implement three additional rate increases of 0.25 percentage points each at upcoming meetings. This forecast is consistent with market expectations that interest rate increases could continue through

June 2027. Nevertheless, future decisions will depend on inflation trends and the strength of economic demand.

Fed Chair's Remarks in Focus

Following the interest rate decision, Fed Chair Kevin Warsh is expected to hold a press conference. Market participants will closely monitor his comments on returning inflation to the 2% Although keeping rates unchanged would represent a pause in the short term, persistent inflationary pressures could increase the likelihood of a return to tighter monetary policy in the future. Ultimately, the Fed's main challenge is to maintain price stability while taking economic activity into account. If inflation proves persistent, borrowing costs in the United States could remain elevated for longer or rise again.