Federal Reserve holds interest rates steady in face of persistent inflation
Federal Reserve officials held interest rates steady Wednesday despite stubborn inflation.
The central bank’s Federal Open Market Committee (FOMC) voted 10-2 to keep the benchmark federal funds rate range at 3.75 percent to 4 percent.
“The committee believes that the accumulation of more information will help it determine the policy stance appropriate to ensure a timely return of inflation to the 2 percent goal,” Fed Chair Kevin Warsh told reporters, reiterating the FOMC’s statement.
Fed board of governors member Lisa Cook and Federal Reserve Bank of Cleveland’s president Beth Hammack dissented in favor of a quarter-point increase. Hammack also backed a rate hike in late July, joining two of her colleagues in the minority when the central bank kept rates steady.
Wednesday’s decision came six weeks after officials raised rates by a quarter point, the first hike in more than three years. Inflation has risen this year amid the Iran war, creating a difficult set of circumstances for President Trump and the GOP this midterm cycle.
Warsh said Wednesday he has “started to see some changes” in financial and credit conditions since the Fed raised rates in September.
“They have tightened for some businesses and households, much as we would expect,” he added. “Market participants are becoming somewhat more discerning in their capital allocations.”
But the Fed chair noted he was “unwilling and unable” to call financial conditions “tight,” while arguing they are headed “in the direction of achieving a longer or durable period of economic growth and price stability.”
Traders were overwhelming anticipating a hold, pricing in a 92.8 percent chance of the FOMC keeping rates steady as Wednesday afternoon, according to the CME FedWatch tool.
Investors expected a hold despite inflation remaining above the Fed’s 2 percent target for five and a half years.
Annual inflation, based on the consumer price index (CPI), rose from 3.4 percent in August to 3.7 percent in September. Energy shocks from the U.S.-Iran and Russia-Ukraine wars continue to hamper the economy, as gas prices in September experienced their highest monthly jump since March.
Multiple Fed officials, though, recently stressed the need to patiently evaluate economic data — a sign they were willing to punt the next rate hike to early December, when the FOMC will meet for the last time in 2026.
Ted Rossman, a finance analyst at Money Management International, said it “seems very likely” the Fed will increase rates by a quarter-point increase in early December.
“Inflation remains uncomfortably high, and the rising cost of living and elevated interest rates are combining to squeeze household budgets,” he told The Hill via email.
Last month, 12 of 18 FOMC officials forecast one more rate hike this year in addition to September’s quarter-point increase, according to the committee’s quarterly economic projections.
“The Fed has time on its side. Inflation expectations remain anchored and second-round effects are limited, giving policymakers room to wait for more data,” Seema Shah, the chief global strategist at Principal Asset Management, said this week.
Shah added she expects the central bank to hike rates in December and again in “early 2027.”
Warsh did not commit to a future decision on Wednesday, but he said the FOMC is “working on” lowering inflation.
“We will deliver price stability,” the Fed chair said. “No ifs, ands or buts, and that continues to be.”
The Bureau of Economic Analysis on Thursday will release personal consumption expenditures (PCE) price index data for September. The Cleveland Fed projects that the PCE, the Fed’s preferred measure of inflation, will measure prices as being up 3.6 percent from September 2025.
PCE inflation dipped from 3.7 percent in July to 3.4 percent in August. But energy prices experienced their largest monthly jump from August to September, according to the CPI, as the eight-month Iran war continues with no clear end in sight.
Warsh acknowledged the price pressures squeezing Americans, referencing the spike in gas prices during the Middle Eastern conflict.
While a gallon of regular gas is, on average, roughly 23 cents cheaper than it was a month ago, it remains about $1.21 higher than a year ago, according to data from AAA.
“I am not going to be the guy who says that oil prices haven’t gone up, and when [Americans] fill up their tank, they don’t see it,” Warsh said.
Those higher prices pose political problems for Republicans in the midterms, as Democrats attempt to take control of Congress for the lion’s share of Trump’s final two years in office.
Warsh, however, insisted Fed officials did not take politics into account in holding rates steady.
“I just spent two days with my colleagues upstairs,” the Fed chair told reporters. “I didn’t hear an utterance about politics. I didn’t hear a reference to politics, elections, what’s happening in the next week or so.”
Updated at 3:59 p.m. EDT
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