A MARTÍNEZ, HOST:
The Federal Reserve ordinarily tries to fight inflation by raising interest rates.
STEVE INSKEEP, HOST:
Right now prices are growing more rapidly than the average worker's wages, but investors are not expecting the Fed to raise rates at its meeting today.
MARTÍNEZ: NPR's Scott Horsley joins us now. So, Scott, if the prediction is that the Fed will not use its main tool against inflation, does that mean the Fed thinks inflation has been tamed?
SCOTT HORSLEY, BYLINE: Probably not. The most recent cost-of-living report we got from the Labor Department showed prices in September were up 3.7% from a year ago. That's an even bigger annual increase than the month before. Course, the spike in energy prices has been a big driver of inflation. And Dan North, who's a senior economist at the insurance company Allianz Trade, says that's getting worse since the war with Iran started eight months ago.
DAN NORTH: Sometimes on a highway, there's kind of an exit that says wrong way in case somebody exits there. I've got that sign on my charts - this wrong way. That inflation line is going up, not down.
HORSLEY: Fed policymakers did raise interest rates the last time they met, in September. But investors are betting that with the Election Day just around the corner, the central bank is going to try to keep a low profile today, hold rates steady at this meeting and then maybe raise rates at the next meeting in December.
MARTÍNEZ: Well, OK. So what would change between now and December?
HORSLEY: Well, course, the election will be behind us. And then we'll also have a couple more months to see if that upward trend in inflation continues. Fed Chairman Kevin Warsh and his colleagues have all said they're determined to bring prices under control, but they aren't necessarily on the same page about how to do that. You know, the vote to raise rates last month was unanimous. But at the previous month, when the Fed stood pat, several members of the committee dissented because they wanted a rate hike back then. Brian Mulberry, who's chief market strategist at Zacks Investment Management, says we could see a similar split on the committee today.
BRIAN MULBERRY: I think that it could be another 9-3 type of a vote - maybe even more divided than that, based on people's strong opinions of where the direction of inflation is going. But I don't expect another unanimous meeting at all.
HORSLEY: Most members of the rate-setting committee have signaled they expect interest rates to go higher this year, even if they're not in a big hurry to raise rates this afternoon.
MARTÍNEZ: All right. The broader economy, though, Scott - I mean, how's it faring with higher prices and the prospect of higher interest rates?
HORSLEY: Yeah. It's really a mixed bag. Some parts of the economy are booming. Of course, there's a ton of money being poured into artificial intelligence. That's contributing to higher inflation, but no amount of tapping on the brakes by the Fed seems likely to slow that down. On the other hand, the housing market is in a really deep, long-lasting slump, with - mortgage rates north of 7% are not helping with that. Consumer spending so far has been pretty resilient. But Mark Zandi, chief economist at Moody's Analytics, wonders how long that can continue at a time when wages are not keeping up with the rising cost of living.
MARK ZANDI: Lower- and middle-income Americans are having a real struggle. Their purchasing power is actually declining. And that's a pretty uncomfortable place to be, right? And that likely goes to explain to a large degree why people just don't feel very good about the economy. They're pretty upset about the economy.
HORSLEY: By contrast, upper-income families - they're feeling pretty good, especially if they have money in the stock market, so they're driving a lot of that spending. We expect a pretty solid GDP report tomorrow for July, August and September. But that's not much comfort if you're struggling to put gas in the car and groceries in the cupboard. You know, you can't eat GDP.
MARTÍNEZ: No, you can't. That's NPR's Scott Horsley. Scott, thanks.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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