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The US Federal Reserve on Wednesday held interest rates steady, as markets had expected, six days before midterm elections in which surging inflation has been a central issue.
The 12-member Federal Open Market Committee voted 10-2 to keep its benchmark rate in a target range of 3.75 to 4.00 percent. It said it needs more data in the fight against inflation. The pause follows the committee’s first rate increase in three years at its September meeting.
“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 two percent goal,” the Fed said in a statement.
Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented. Both wanted an immediate quarter-point rate hike.
The central bank has missed its long-term inflation target of two percent for more than five years, and households and businesses have been hit by sustained price increases.
US consumer inflation came in hotter than expected in September at 3.7 percent, edging back toward a three-year high set in May.
Energy prices have jumped since President Donald Trump launched a war on Iran in late February, adding to domestic inflation alongside his wide-ranging tariff policies.
An investment boom in artificial intelligence and the construction of large data centers to support it has also pushed prices higher.
Even so, key Fed policymakers, including Warsh, had signaled there was no urgency to raise rates again right away.
Speaking in Bangkok earlier this month, Warsh said US economic conditions had “broadly conformed” to policymakers’ expectations, which fueled speculation of a pause.
On Wednesday the Fed also upgraded its description of the economy, saying activity was expanding at a “strong” pace, stronger language than it used six weeks ago.
Wendy Edelberg, a senior fellow at the Brookings Institution, said before the meeting that holding after September’s hike could look contradictory, since the labor market has been largely stable. “In terms of the economics of it, I don’t totally understand the logic,” she told AFP.
“If there was a reason to raise interest rates at the last meeting, I think that there’s just as compelling of an economic reason to raise interest rates at this meeting,” she said.
The Fed has a dual mandate to maximize employment and keep inflation at its long-term target. Its main tool is the economy’s key interest rate.
Higher rates tend to cool inflation but can also slow economic activity, while lower rates can spur growth but fuel inflation.
The US unemployment rate has hovered around 4.2 percent over the past year, and job growth has mostly been positive, though concentrated in a few sectors. Other advanced economies are also contending with high inflation.
Canada’s central bank on Wednesday raised its key rate to 2.5 percent, its first increase since July 2023.
The decision comes before the November 3 midterms, in which Democrats are seeking to take control of both houses of Congress from Trump’s Republicans. Trump’s handling of the economy has been a key campaign issue.
Working-class households across the country are struggling to make ends meet even though overall economic growth has been largely stable.
Trump has loomed over the central bank since returning to office last year. In his second term he has mounted what the source describes as an unprecedented assault on the Fed’s independence. He pursued criminal charges against Jay Powell, Warsh’s predecessor, and tried to fire Cook as he demanded lower interest rates.
The probe of Powell was dropped to smooth the way for Warsh’s Senate confirmation. The White House has recently renewed its push to remove Cook, despite a Supreme Court decision that rebuffed an earlier attempt.
Loretta Mester, a former Cleveland Fed president who took part in FOMC meetings during her tenure, insisted the committee does not “take into account any kind of political issues” when debating monetary policy. She expected the pressure to continue. “I don’t think it’s going to stop because I think it’s in the nature of this administration to continue those attacks,” she said.
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