The US Federal Reserve kept interest rates unchanged on Wednesday, as expected, opting to delay any changes to borrowing costs until after next week’s US midterm elections while awaiting further data on the inflation outlook.
The US central bank said in a 10-2 vote that it would maintain its benchmark interest rate within its current range of 3.75% to 4%.
The Fed acknowledged that inflation “remains elevated,” while upgrading its assessment of economic activity and signaling that further rate increases could be considered depending on developments in inflation.
In its latest policy statement, the Federal Open Market Committee said that accumulating more information would help policymakers determine the appropriate stance of monetary policy to ensure inflation returns to the committee’s 2% target in a timely manner.
“The committee will achieve price stability,” the statement said.
Federal Reserve Governor Lisa Cook, whom US President Donald Trump has sought to remove from the central bank, dissented in favor of a quarter-point rate increase. Cleveland Fed President Beth Hammack, who has consistently favored tighter monetary policy, also voted for a quarter-point increase. She had similarly dissented at the Fed’s July meeting.
The latest policy statement marked a notable shift from the September 15-16 meeting, as it included a form of forward guidance that Fed Chair Kevin Warsh had said he wanted to avoid.
The Fed upgraded its assessment of the economy to “strong” from the “solid” growth it had identified at its September meeting, while continuing to describe investment as strong. It also said job gains had continued to keep pace with growth in the labor force.
Market reaction was limited, with US stocks slightly trimming their gains after the decision. US Treasury yields continued to rise, with the 10-year Treasury yield reaching 5.028%. Short-term interest-rate futures edged higher as traders slightly reduced their bets on future rate increases.
Kelly Brown, chief executive of Ambersand Deposit Management, said keeping rates unchanged was “not a reprieve,” describing the decision as a message from the Fed to Main Street to wait.
“With inflation at 3.7% and oil above $100 a barrel, companies cannot count on lower borrowing costs anytime soon,” she said.
Inflation Concerns Intensify
The decision was widely expected following indications from senior Fed officials that they saw no urgent need for another rate increase after the quarter-point hike approved last month, despite stronger-than-expected inflation data and concerns about widening price pressures across parts of the economy.
Energy costs remain elevated, including diesel fuel, which is a key input for shipping, agriculture and other sectors.
Inflation and the broader cost of living have been major issues in the political races that will determine whether President Trump’s Republican Party retains control of both chambers of Congress in the November 3 elections, or whether Democrats gain leadership positions and stronger oversight powers, including over the central bank.
Investors expect further rate increases may be needed beginning in December and continuing into 2027 to bring inflation down. Inflation is currently about one percentage point above the Federal Reserve’s target and has shown little progress in recent months.
The US central bank has failed to reach its inflation target for five and a half years, raising concerns among some officials that businesses and households may have become accustomed to faster price increases and could begin planning for them in ways that make inflation more difficult to control.
Source: Reuters
