Reasons for raising interest rates:
1. Inflation data remains high—September's high CPI and PPI data highlight that progress in reducing inflation has been slow for the second consecutive year.
2. Delayed action has costs—Given the market's widespread expectation of a December rate hike, hawks may argue that waiting another six weeks, considering the costs of delayed action, offers no benefit.
3. Interest rates are not restrictive enough—Hawks will also argue that current policy has not yet reached a "restrictive" level, which is exactly what is needed.
Reasons for holding rates steady:
1. Diversifying rate hikes is manageable risk—If policymakers still believe that two to three more rate hikes are needed, then spreading out the remaining rate hikes is not costly. Former Fed official Kaplan pointed out that the risk of acting six weeks later is manageable.
2. Consecutive rate hikes are misleading—Consecutive rate hikes could send the signal to the market that the rate hike cycle is faster than policymakers expect.
3. Pre-election action is unusual – officials had previously hinted at no rush to act, and Warsh's silence fueled market expectations of maintaining interest rates unchanged; a sudden rate hike on the eve of the election would undoubtedly trigger market turmoil. The Federal Reserve has never raised interest rates unexpectedly before an election.
