Fed votes in split decision to hold interest rates steady despite sticky inflation

With the midterm elections less than a week away, the Federal Reserve held interest rates steady on Wednesday, even as the latest inflation reports show prices are rising again. 

The central bank voted in a split decision to hold its benchmark interest rate steady in the range of 3.75% to 4%, after raising rates last month for the first time in more than three years. 

Cleveland Fed president Beth Hammack and Fed Governor Lisa Cook broke ranks, preferring to raise rates by a quarter percentage point. This is the second time since July Hammack has dissented in favor of raising rates, and Cook’s first dissent in her tenure.

Read more: Follow live updates from the Fed’s October meeting

Officials said they are focused on looking at additional data to make future decisions on rates, noting in their policy statement that “the accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the committee’s 2% goal.”

The latest inflation reports show price growth has accelerated. The Consumer Price Index clocked in at 3.7% in September from 3.4% in the prior month. Stripping out volatile food and energy prices — the way the Fed likes to scrutinize underlying inflation — CPI rose 2.6%, compared with 2.4% in August. Wholesale prices jumped more than 6% last month, and the Fed’s preferred inflation gauge — the core Personal Consumption Expenditures Price index, which is due out Thursday — is projected to top 3%. 

Fed Chairman Kevin Warsh, in a press conference Wednesday afternoon, acknowledged that the job of containing inflation is unfinished.

“If you were listening next to me in that room the last couple of days, the overwhelming consensus, the overwhelming judgment, is that what we’ve done in this monetary medicine (is) starting to work some, but there’s no firm conclusions,” Warsh said. “I’m encouraged by the progress we’ve made in a short period of time. But if the crux of your question is you haven’t delivered yet, you haven’t achieved price stability. You’re right about that. But we’re working on it.”

Warsh also announced a change to the Federal Open Market Committee’s meeting schedule, beginning next fall. They will still meet eight times a year, but one meeting will “focus exclusively on broad monetary policy strategy, with neither a vote on the federal funds rate nor a policy statement anticipated.”

In 2028, he said, two meetings will be dedicated to strategy and six on setting policy, Warsh said.

Officials also reiterated in their statement that uncertainty remains elevated in part due to geopolitical developments, but that domestic spending has been resilient and productivity and capital investment are strong. 

A chorus of Fed officials has called for further rate hikes to bring down sticky inflation, while leaving flexibility on when those hikes might occur. But key leaders on the interest-rate-setting committee have signaled that the central bank should take time to monitor and assess whether inflation comes down in a timely manner.

Hammack said a few weeks ago that she prefers more frequent, smaller rate adjustments to ensure an inflationary mindset doesn’t take hold, as she believes inflation is broad-based and will take time to come back down.  

The Fed’s actions come just five days before the midterm elections. President Trump has asserted that the central bank’s interest-rate policy is hurting the economy more than inflation.

“Politics played no role in the decision,” Warsh said Wednesday.

The committee meets again in six weeks, on Dec. 9. The CME FedWatch tool currently has traders pricing in 86% odds of a quarter-point hike at year end.

Read more: What the Fed’s interest rate decision means for your money

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