Fed holds rates days before US midterms as two officials push for another hike

Federal Reserve pauses after September rate rise as dissent emerges

Usagevpn.com – The US Federal Reserve left its benchmark interest-rate range unchanged at 3.75% to 4% on Wednesday, opting to wait for further evidence on inflation and the economy after lifting borrowing costs in September for the first time in three years.

The decision arrives just days before Americans head to the polls for the midterm elections, at a moment when consumer prices remain above the central bank’s target and energy costs continue to weigh on households. Financial markets nevertheless continue to anticipate another increase in December.

The vote exposed a clear divide within the rate-setting Federal Open Market Committee. The policy decision passed 10-2, with Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack favouring an additional quarter-percentage-point increase. In September, by contrast, the committee had backed the rate rise unanimously.

Dallas Fed President Lorie Logan, who had also been viewed as a possible supporter of tighter policy, voted with the majority to keep rates unchanged.

Inflation target remains central to the debate

The Fed stressed that inflation is still running too high, while signalling that future decisions will depend on incoming economic data. Its statement maintained flexibility rather than setting out a clear timetable for another move.

“Inflation remains elevated.”

Policymakers said additional information would guide their assessment of the stance needed to secure a prompt return of inflation to the 2% objective. The central bank also reiterated its commitment to price stability.

“[The committee] will deliver price stability.”

The language differed subtly from the September statement, which said the previous increase would encourage a “timelier” return to the inflation goal. Removing that comparative phrasing suggests officials are keeping their options open while they assess whether price pressures are easing sufficiently.

The case for another increase remains significant. Consumer prices were 3.7% higher in September than a year earlier, while core inflation, which excludes food and energy, reached 2.6%. Core figures are watched closely because they can provide a clearer indication of underlying price momentum.

Fuel was a major contributor to the September increase. Petrol prices, above $4 a gallon for three consecutive months, accounted for more than half of that month’s rise in consumer prices. Diesel climbed to a record $6.53 a gallon in late September.

Oil markets have shown some recent relief but remain far above pre-conflict levels. Brent crude dropped more than 6% on Monday as diplomatic efforts related to the Iran war appeared to gain traction. It traded near $111.75 a barrel late on Wednesday, compared with roughly $72 before the conflict began in late February.

Economic outlook upgraded, though risks remain

Alongside its inflation warning, the Fed offered a more positive view of overall activity. It said the economy was growing at a “strong pace,” upgrading its earlier description of a “solid pace” in September.

Uncertainty, however, was still described as elevated, partly because of geopolitical developments. Earlier statements issued during the first two meetings chaired by Kevin Warsh, in June and July, explicitly referred to the Middle East conflict and supply disruptions affecting areas including energy. Since September, the committee has used less specific language about the Iran war.

Economic growth has remained resilient. The US economy expanded at an annualised 2.2% pace in the second quarter, while the Atlanta Fed’s GDPNow estimate indicates growth of 3.5% for the third quarter. Warsh pointed to consumer demand, productivity and investment as areas of continuing strength.

“Domestic spending has been resilient, productivity growth is strong and capital investment robust,” Warsh told reporters, while adding that “inflation remains elevated”.

He said the committee needed more data before determining the appropriate policy position to bring inflation back to 2% in a timely manner.

Higher rates are already affecting households and hiring

Borrowing conditions have tightened noticeably. The average rate on a 30-year US mortgage reached a three-year high of 7.4% in early October, increasing the cost of purchasing or refinancing a home.

The labour market has also lost momentum. Employers added only 29,000 jobs in September, while the unemployment rate rose to 4.2%. Even so, the Fed said employment gains had continued to keep up with growth in the workforce.

Some senior officials have argued against rushing into another adjustment. Vice Chair Philip Jefferson has highlighted the sharp increase in longer-term borrowing costs, while New York Fed President John Williams has said there is no immediate need to act.

That caution contrasts with the concerns expressed by Cook and Hammack. Their dissents show that support for a more restrictive policy stance remains present within the committee, a factor some economists believe could strengthen Warsh’s position by demonstrating that the case for further tightening has not disappeared.

Cook faces separate political and legal pressure

Cook’s vote came while President Donald Trump continues efforts to remove her from the Fed over mortgage-fraud allegations that she denies. Trump has established a three-member panel to advise on whether grounds exist to dismiss her. Cook, who was appointed by former President Joe Biden, is expected to appear before the committee next week.

In June, the Supreme Court stopped an earlier attempt to remove Cook. Her dissent therefore carries both monetary-policy significance and political sensitivity, with the central bank’s independence under close scrutiny ahead of the midterms.

Warsh reshapes the meeting calendar

Warsh, who has long opposed forward guidance that attempts to signal future policy decisions to markets, again avoided making commitments about the December meeting.

“I don’t prejudge meetings.”

He made a similar point earlier this month in Bangkok, underlining his preference for decisions based on the conditions available at each gathering.

The Fed chair also announced changes to the FOMC calendar. The committee will continue to meet eight times annually, but beginning next autumn, some meetings will focus on strategy discussions rather than interest-rate decisions. The adjustment is intended to create more room for broader policy deliberation while preserving the committee’s regular schedule.