The Federal Reserve is expected to stand pat on interest rates on Wednesday (October 28, 2026) even though inflation has accelerated in the past couple of months as the Iran war has caused spikes in oil and gas prices.

The Fed’s latest policy meeting concludes less than a week before the midterm elections, which have focused heavily on concerns about the cost of living and affordability. Consumers have generally soured on an economy weighed down by more expensive gas, groceries, and clothing, among other items.

The Fed, led by Chairman Kevin Warsh, wants to return inflation to its 2% target, which it typically does by raising its short-term interest rate. Higher borrowing costs, over time, can cool spending and slow inflation. The Fed raised its key rate last month for the first time in three years, from about 3.6% to 3.9%, in what many investors and economists perceived was a first step toward a renewed effort to bring down inflation.

Yet Mr. Warsh faces a host of challenges in achieving that goal. President Donald Trump slammed the Fed for raising its key rate last month, though he largely blamed the central bank’s rate-setting committee, rather than Mr. Warsh, whom he appointed. And some of the forces driving inflation — specifically the rapid build-out of artificial intelligence infrastructure and higher energy prices — won’t easily be tamed by higher interest rates.

At the same time, other parts of the economy are already being hit by higher rates, which were lifted by market forces, even before the Fed hiked last month. The average 30-year mortgage rate reached a three-year high of 7.4% earlier this month, though it has since slipped a bit. Higher mortgage rates have made buying a home unaffordable for 5 million more Americans since the beginning of the year, according to Oxford Economics, a consulting firm. Over time, Fed rate hikes can make mortgages, auto loans, and credit card borrowing more expensive, adding to Americans’ sense that things like homes and cars are getting pricier.

After the Fed announces its rate decision, Mr. Warsh will speak at a news conference, where his remarks will be closely watched for hints about the Fed’s next steps. He will likely repeat the Fed’s desire for a “timelier” return of inflation to the 2% target. Some may view that as a sign the Fed will boost its key rate at its next meeting, in December, a move already widely expected by Wall Street investors.

If the Fed keeps rates on hold, Mr. Warsh will be pushed to explain why the central bank hiked rates in September but not this month. Inflation picked up in September, when consumer prices rose 3.7% compared with a year earlier. The increase was much bigger than the 2.4% rate in February, just before the Iran war.

And on a monthly basis, the consumer price index — the most widely-followed inflation gauge — rose 0.3% in both August and September. At that pace over a full year, inflation would rise much more quickly than the Fed’s 2% target.

On Thursday (October 29, 2026), a separate inflation measure more closely followed by the Fed, the personal consumption expenditures price index, is forecast to have jumped 3.6% in September from a year earlier, up from 3.4% in August. Core prices, which exclude the food and energy categories, are forecast to have risen 3.1%, up from 3% the previous month.

Aditya Bhave, head of U.S. economics at Bank of America, said economists and the Fed have gotten too complacent about above-target inflation. Higher oil and gas prices will likely keep inflation elevated for several more months, he said, and rising diesel costs will elevate shipping prices for nearly every type of good, which could spread inflation more broadly through the economy.

“Unless the Fed takes this problem more seriously and stops essentially making excuses about inflation, I think we’re not going to get back to 2% until the next recession,” Mr. Bhave said.

Mr. Warsh will likely seek to keep the Wednesday (October 28, 2026) press conference relatively short. It was about 30 minutes last month. Mr. Warsh’s predecessor, Jerome Powell, often held news conferences for about 45 minutes.

The Fed’s policy meeting is part of a busy week for central banks around the world. The Bank of Canada will also meet on Wednesday (October 28, 2026) and is forecast to lift its key rate a quarter point, to 2.5%. Policymakers at the European Central Bank and the Bank of Japan are both scheduled to meet on Thursday (October 29, 2026) and are expected to keep their key rates unchanged.

For Mr. Warsh and the Fed, another key consideration is that the U.S. economy is growing at a healthy pace and unemployment remains low, at 4.2%, even if hiring is also sluggish. The government will report on Thursday (October 29, 2026) on growth for the July-September quarter, which is expected to reach 3%, according to a forecast by data provider FactSet. That would be up from 2.2% in the April-June quarter.

Many economists argue that solid growth is evidence that interest rates aren’t particularly high and the economy could withstand higher rates to combat inflation.

Published – October 28, 2026 10:59 am IST