The Federal Reserve is widely expected to leave interest rates unchanged at its upcoming October meeting, a decision that comes as higher energy costs complicate the economic conditions and pile additional pressure on household budgets.
Consumer price figures released for September pushed the annual inflation rate up to 3.7%, driven in part by surging oil prices tied to the ongoing conflict with Iran. Although the central bank raised its benchmark rate by 25 basis points last month to a range of 3.75% to 4%—its first hike since 2023—financial markets see virtually no chance of an immediate follow-up. Data from the CME Group’s FedWatch tool indicates less than a 10% probability of another quarter-point hike at the upcoming meeting, though nearly 75% of market participants still anticipate at least one increase before the end of the year.
“Inflation is still the No. 1 problem in the U.S. economy, and there are a lot of signs it is getting more broad-based,” said Heather Long, chief economist at Navy Federal Credit Union. “For consumers, it means really high borrowing costs for the foreseeable future.” However, she added, “given that it’s right before an election, they won’t hike in October.”
Economic Pressure and Political Timing Ahead of the Vote
The central bank’s policy decision arrives just days before the midterm elections, providing a final economic marker on the pace of price growth before voters head to the polls. Historical research shows that the Fed generally maintains its trajectory during election cycles, and previous rate hikes near midterms—specifically in 1978, 1982, 2018, and 2022—were consistently tied to accelerating inflation, according to Mark Shore, director and economist at CME Group.
Federal Reserve Chairman Kevin Warsh has expressed a commitment to driving inflation back down to the central bank’s 2% target. “If the Fed holds, markets could question the Fed’s inflation-fighting credibility,” said Bank of America economist Aditya Bhave in a research note published on Oct. 23.
While the federal funds rate dictates what commercial banks charge each other for overnight loans, it directly filters down into everyday consumer borrowing and savings products. Short-term rates track closely with the prime rate, which typically sits 3 percentage points above the federal funds rate, while long-term costs are dictated by inflation expectations and wider macroeconomic conditions.
How Elevated Rates Impact Household Wallets
“Higher longer-term rates are doing more damage to consumer wallets, as they’ve risen more than short-term rates, and are weighing heavily on refinancing activity, homebuying and vehicle sales,” said Mark Zandi, chief economist at Moody’s. “Higher short-term rates also hurt, but mostly by raising rates on credit cards, consumer finance loans and home equity lines.”
Because credit cards carry variable rates tethered directly to the benchmark, a steady rate decision by the Fed will leave annual percentage rates near their current elevated levels. Data from LendingTree shows the average interest rate on a new credit card offer stands at 23.96%.
Meanwhile, the 10-year U.S. Treasury yield has hovered near 5%, keeping the average rate for a 30-year fixed mortgage close to 7.4%, according to Mortgage News Daily figures. Auto loan borrowers face similar headwinds, with many buyers resorting to larger loan amounts and extended repayment terms to manage high financing costs, as reported by Edmunds. Federal student loan rates remain fixed for existing borrowers, though rates for incoming students for the current academic year adjusted upward following the May Treasury note auction.
On the savings side, elevated benchmark rates continue to provide a rare silver lining for depositors, keeping yields on high-yield savings accounts and comparable deposit products attractive.
The Federal Reserve’s policy committee will officially announce its rate decision following the conclusion of its scheduled meeting this week.
