Did the Midterms Delay a Fed Rate Hike? | Diving In

So first of all, what could the Fed have done today? The key decision was whether to leave rates, interest rates where they are, or to raise them by, say, a quarter of a point, which is what they did at the last one of these meetings in September.

That last meeting was really noteworthy.

It was the first time the Fed had raised rates in 2023.

It raised them last time because it said inflation was above its 2% target.

And the news since then has actually been a little bit worse.

You might be asking yourself, well, hey, where's inflation right now? As of September, well, there's never a single answer in economics.

It depends which measure you're using.

The Fed likes to look at what's called PCE inflation.

That's been running at 3.4% over the past year.

Core inflation is 3.8%.

And the number you might've heard more often, CPI, that's the one that describes your cost of living.

That's risen by 3.7%.

Hey, listen, the thing you really need to understand is all of those begin with the number three, and three is bigger than the number two.

Two is the Fed's inflation target.

So you might be thinking, why did the Fed decide to keep rates unchanged this time? First of all, I just want to admit, I'm a little bit puzzled myself.

I want to give a bit of context to help understand it.

Right now, markets believe there's an 85% chance that the Fed hikes rates at the next meeting, which is in December.

That I think is really important.

So basically, markets think it's almost a sure thing.

The Fed needs to raise rates.

So really what the Fed did is it delayed today's rate rise to December.

Now, if you're worried that Monetary policy moves too quickly and corrects inflation too easily.

You'd want to push it back.

But that's never been a concern of a Fed chair.

Look, people say monetary policy operates with long and variable legs.