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Fed Holds Rates Steady Amid Inflation Concerns
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In Short: Despite the strong inflation data, the Fed opted to hold rates steady, citing the need for more economic data to determine the appropriate policy stance.
The decision comes after the Fed raised rates in September, its first increase since 2023. Policymakers are weighing persistent inflation against a still-strong economy.
Inflation rose to a four-month high in September, with consumer prices up 3.7% from a year ago, according to the U.S. Bureau of Labor Statistics. This marks a significant increase from the previous month.
Despite the strong inflation data, the Fed opted to hold rates steady, citing the need for more economic data to determine the appropriate policy stance.
Fed Chair Kevin Warsh said policymakers had opted to leave rates unchanged as they await further economic data. He noted that economic activity is expanding at a strong pace, though uncertainty remains due to geopolitical developments.
The odds of a quarter-point rate hike at the Fed's next meeting in December are pegged at nearly 80%, according to CME Group's FedWatch Tool.
In a memo to clients before the rate announcement, Deutsche Bank Research said the upcoming midterms could factor into a potential decision to hold interest rates steady, though in their view the election would not be a 'primary consideration.'
Gold prices declined on Wednesday, primarily attributed to interest rates, as May U.S. CPI data reinforced market expectations for rate hikes. Gold is a non-yielding asset, and when interest rates rise, the opportunity cost of holding gold increases.
Bitcoin price has reclaimed the $80,000 level after briefly falling below it earlier on Thursday, as fresh US economic data showed stronger than expected growth in the third quarter and persistent inflation in September.
What this adds
The Federal Reserve's decision to hold rates steady reflects a cautious approach amid ongoing economic uncertainty and inflation pressures. The central bank's move to maintain the current rate range is consistent with its previous stance of balancing economic growth with inflation control.
The Fed's decision to hold rates steady is in line with historical trends, as central banks have generally been less likely to adjust interest rates in the weeks leading up to Election Day.
The central bank's plans for reducing the number of rate decisions in 2027 and 2028 reflect a shift towards a more streamlined approach to monetary policy.
Background
The Federal Reserve decided to keep interest rates unchanged, citing a resilient economy and ongoing inflation pressures.
The Federal Reserve announced Wednesday that it would keep interest rates steady at 3.75-4 percent, following a 10-2 vote.
What's confirmed
- "We could imagine that all else equal the Fed might prefer to stay out of the headlines for raising rates just ahead of a midterm election where affordability is the principal concern," the memo said. 24/7 coverage of breaking news and live events The Federal Reserve held interest rates steady on Wednesday as the economy faces a monthslong surge of inflation ahead of the midterm elections.
What's still developing
- The Federal Open Market Committee voted 10-2 to maintain the federal funds rate at a target range of 3.75% to 4%.
- "It would be suspicious if there were a hike before the midterm," North said.
- During election years between 1972 to 2024, the Fed has generally been less likely to adjust interest rates in the weeks leading up to Election Day, according to a historical analysis by CME Group, a global derivatives marketplace and financial markets company.
- Most economists anticipate double-digit falls in Australian property prices as interest rates climb, with Morgan Stanley forecasting peak-to-trough drops of up to 15%.
- Economists increasingly anticipate another quarter-point rate increase in December if inflation fails to moderate, potentially keeping borrowing costs elevated for households and businesses heading into 2027.
- Activists have argued that Alito’s financial holdings and ties to the energy sector create an appearance of a conflict of interest.
- Alito does not own stock in Suncor or ExxonMobil, but he holds stocks in other oil companies, including ConocoPhillips and Phillips 66.
- “I want to have the freedom of speech, the freedom of expression, and the freedom to engage on matters that are not monetary policy matters,” Lagarde said at her regular press conference after the ECB left its key interest rates unchanged on Thursday.
- When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy.
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- ECB President Christine Lagarde said in Brussels on Monday that the central bank remains on the “middle path” after raising interest rates by 25bp earlier this month, arguing that the energy shock is too large to ignore but has not yet become embedded deeply enough to justify a more forceful response.
- The September projections still see headline inflation averaging 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028, while risks remain tilted upward for inflation and downward for growth.