Fed Faces Prospect of Another Interest Rate Increase Just Before Midterm Elections

When officials at the Federal Reserve raised interest rates last week in their first major step in years to turn the tide on inflation, many expected that it would buy the central bank time to see whether price pressures were easing before taking action again.But over the course of the past week, a newfound urgency has been injected into the debate, raising the prospects that the central bank will be boxed into delivering another quarter-point increase at its next meeting in October.That gathering is scheduled just days before midterm elections that will determine how much leeway President Trump will have to enact his agenda in the latter half of his term.The Fed strives to be politically independent and asserts that it does not factor the electoral calendar into its policy debates.There are numerous instances in which the central bank either raised or lowered rates in the months leading up to or directly before an election because the economic conditions warranted it.

But at a time when Mr.Trump has accused the Fed of being politically motivated and has taken direct aim at individual policymakers for not complying with his demands for substantially lower borrowing costs, the economic rationale needs to be ironclad.Financial markets this week have boosted bets that the Fed will risk drawing Mr.

Trump’s ire and proceed with another quarter-point increase that will lift rates to a new range of 4 percent to 4.25 percent at its meeting on Oct.27-28.

Traders in federal funds futures markets now ascribe roughly 70 percent odds on that outcome.This belief stems from a string of data that has reinforced the view that the economy is gaining, not losing, momentum.The most recent evidence came from a closely watched survey of the private sector by S&P Global, which on Wednesday showed that U.S.

business activity surged to a five-year high in September.That followed in the wake of a robust retail sales report the week prior, and a stronger-than-expected jobs report e...