The Federal Reserve held the federal funds rate steady at 3.75 percent to 4 percent range following an interest rate hike in the face of sticky consumer and producer inflation data published by the U.S. Bureau of Labor Statistics, growing at 3.7 percent and 6.3 percent the past 12 months respectively as of September.
According to the Fed’s statement: “Economic activity is expanding at a strong pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little. Inflation remains elevated.”
The central bank was right about growth, as the Gross Domestic Product (GDP) just came in at 3.4 percent growth annualized in the third quarter of 2026, according to the U.S. Bureau of Economic Analysis. That’s great news.
The pause in interest rate hikes came after a 0.25 percent rate hike in September and after the prior three consecutive 0.25 percent rate cuts in September, October and December 2025 prior to the resumption of the Iran war in February that sent oil and natural gas prices up as global distribution was disrupted out of the Persian Gulf.
Now, oil is over $100 a barrel again. Gasoline prices are $4.30 a gallon. The economy’s growing, but so are prices.
In truth, the September report also shows substantial disinflation, for example, food prices did not grow at all. And when you just look at core inflation without food and energy, consumer prices only grew 2.6 percent. If oil prices do indeed come down this year and in 2027, the numbers will look a lot different.
Milton Friedman defined inflation as too much money chasing too few goods, and so when confronted with the latter of a major supply disruption and spiking prices, central banks will often resort to tightening the cost of money as it did in September, and now holding steady in October.
While it won’t do anything to boost production and supplies elsewhere, hiking bank interest rates makes borrowing more expensive, slowing the money supply and finding its way to consumer interest rates, thus curtailing spending, bringing down demand and eventually prices — at least in theory.
Often at the tail end of the economic cycle, usually bouts of inflation are met with disinflation and then a rise in the unemployment rate — seen most recently from April 2023 through November 2025 from 3.4 percent to 4.5 percent before settling to its current 4.2 percent in September.
In the meantime, average weekly earnings are only up 3.6 percent in the past twelve months.
Now, to break even on the inflation that began after Covid shut down the economy and production as the government printed trillions of dollars, assuming inflation returns next month to where it was before the war escalated, has once again been pushed forward, this time to February 2028.
For some perspective, before the war was renewed against Iran, the U.S. economy was on pace to break even from the post-Covid inflation by Dec. 2026, according to an Americans for Limited Government Foundation analysis of the data. Just a month ago, the break-even date had moved forward almost a year to October 2027. Now, it’s up to February 2028.
Politically, this is all obviously bad news for Republicans, not just in the 2026 Congressional midterms — but for 2028. And, on the issue that likely propelled President Donald Trump and Republicans into power in 2024.
It can all slip away in a minute.
Just ask Gerald Ford, Jimmy Carter, George H.W. Bush and Joe Biden. They all had inflation outpace incomes for a time during their presidencies, and they were all one-term presidents.
Getting prices down was and is job number one.
Globally, inflation is about one of the most politically destabilizing forces in history. In popular government, it’s a majority killer. And on Tuesday, the American people are likely to deliver a painful reminder of this to the President’s party. There will be time to correct course before 2028 — but not much time.
Robert Romano is the Executive Director of Americans for Limited Government Foundation.
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