The US Federal Reserve held interest rates unchanged at 3.75%-4% in a 10-2 vote, as policymakers weighed persistent inflation against a resilient economy and waited for further data before deciding their next move. The decision came ahead of next week’s US midterm elections, with the central bank acknowledging that inflation remains elevated despite signs of continued economic strength.
Fed Chair Kevin Warsh said economic activity was expanding at a “strong” pace, upgrading the Fed’s assessment from “solid” at its September meeting. Domestic spending remained resilient, productivity growth was strong, investment robust and job gains had kept pace with the workforce, while the unemployment rate had changed little. However, inflation continues to run above the Fed’s 2% target, leaving policymakers divided over whether monetary policy needs to tighten further.
Governors Lisa Cook and Beth Hammack dissented from the decision, favouring a 25-basis-point rate hike. Their position reflects concerns that inflationary pressures remain persistent and that delaying further tightening could make it harder to bring price increases under control.
Some economists and market participants have also suggested that another rate hike could come in December, although the Fed has not committed to a specific course.
Warsh said the central bank needed more information to determine the appropriate policy stance, stressing that tackling inflation could not be tied to a fixed date or a single data point. He added that inflation expectations had moved in the right direction since the Fed’s September policy action, while financial and credit conditions had tightened for some businesses and households. However, he said he was unwilling to describe overall financial conditions as tight.
Markets reacted cautiously to the decision. US stock indexes were mixed, Treasury yields edged higher and short-term interest rate futures rose, reflecting uncertainty over the path of monetary policy. The Fed’s statement leaves the possibility of further rate increases open if inflation fails to ease, even as policymakers acknowledge that employment and economic activity remain relatively strong.