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Fed Keeps Rates Steady Amid Inflation Worries

Updated 1:07 PM ET · 10:39 AM ETConfirmedShare on

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In Short: The Federal Reserve announced Wednesday that it would keep interest rates steady at 3.75-4 percent, following a 10-2 vote.

The Federal Reserve announced Wednesday that it would keep interest rates steady at 3.75-4 percent, following a 10-2 vote. This decision comes as inflation continues to rise, with the most recent Consumer Price Index (CPI) report showing the annual inflation rate at 3.7 percent in September, up from 3.4 percent in August, largely due to energy prices.

Fed Chair Kevin Warsh said in a statement that the committee believes the accumulation of more information will help determine the appropriate policy stance to ensure a timely return of inflation to the 2 percent goal. He added that the economy is growing at a strong pace, but inflation remains elevated, partly due to a recent rise in global energy prices.

The decision to hold rates steady was in line with expectations, with the CME FedWatch Tool indicating more than a 90 percent chance that rates would remain unchanged. Warsh also announced that the central bank will reduce the number of meetings at which it votes on interest rates from eight to seven next year and by two in 2028.

The Fed's decision to maintain rates comes amid growing concerns over inflation and the upcoming midterm elections. Some economists have expressed skepticism about the timing, with one memo suggesting that the Fed might prefer to stay out of the headlines for raising rates just ahead of the election.

President Donald Trump criticized the Fed's decision, previously stating on Truth Social that interest rates in the United States should be 1% or less. Trump has repeatedly pressed the Fed to cut rates since taking office.

In a press conference following the announcement, Warsh said that the Fed is working to deliver future price stability and quash inflation. He emphasized that the central bank is ready to act as circumstances require and has shown its willingness to do so.

The upcoming Personal Consumption Expenditures (PCE) Price Index report, which is used by the central bank to assess inflation and inform its decisions, will be released on Thursday. This report is expected to show a 0.5% monthly increase in the personal consumption expenditures index, translating into a 3.6% year-over-year increase.

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

Background

What's confirmed

• Rates will remain 3.75-4 percent even as inflation continues to rise.
• The central bank will maintain rates at 3.75-4 percent, following a 10-2 vote, in line with expectations.
• Today’s Fed announcement follows an interest-rate hike rise last month, amid surging inflation – the first increase by the central bank since July 2023.
• The most recent Consumer Price Index (CPI) report showed the annual inflation rate increasing to 3.7 percent in September, up from 3.4 percent in August, with energy prices largely accounting for the monthly surge.
• CME FedWatch, which tracks the likelihood of monetary policy decisions, indicated that there was more than a 90 percent chance rates would remain unchanged.
• The United States Federal Reserve is set to hold interest rates steady in its final monetary policy decision before the US midterm elections.
• The Federal Reserve held interest rates steady at its Wednesday meeting and did not disclose a timeline for when it will lower them. ( iStock ) The Federal Reserve is keeping rates steady at its targeted range of 4% to 4.25% and is waiting to see how President Donald Trump's administration's tariffs will impact the economy.
• Prices increased 3.7% in September compared to a year earlier, putting the inflation rate more than a percentage point above the Fed's target level of 2%, data showed.
• "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.
• "The committee believes the accumulation of more information will help it determine the policy stance appropriate to ensure a timely return of inflation to the 2% goal," Warsh said.
• 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."
• In a statement after its two-day meeting, the Fed added that inflation remains elevated, partly due to a recent rise in global energy prices.

What's still developing

• There were signs earlier this month that the central bank would maintain benchmark interest rates, with the Fed’s chair for supervision, Michelle Bowman, advocating a “wait and see” approach.
• Still, barring a report that shows “extremely” high inflation, a new tone may be struck in the market starting in September, Bassuk adds.
• "It would be suspicious if there were a hike before the midterm," North said.
• Warsh, the Fed’s chairman, leaned into the idea that the central bank had the flexibility to accumulate more information to make the right determination about rates because expectations about future inflation do not point to a lack of confidence in the Fed’s ability to eventually achieve the 2 percent target and because there are no signs the economy is overheating.
• Friday’s US inflation report showed that prices remain stubbornly high and core inflation, which excludes volatile food and energy, picked up in August from the previous month.
• Fed officials see demand-driven inflation as being more under their control, and concerns that price ⁠increases are broadening across the economy could lead some policymakers to dissent in favor of a rate hike that they feel ⁠is needed to keep inflation from accelerating.
• "The fundamentals call for raising the rate," Rogoff told Yahoo Finance.
• Economic data published in the United States last week indicated slower inflation and signs of a mild cooling in labor market conditions.
• That level marks a significant drop from a recent peak attained in 2023, but rates stand well above a 0% level established at the outset of the COVID-19 pandemic.
• "If the Fed hikes, investors might worry about overtightening. If the Fed holds, markets could question the Fed's inflation-fighting credibility," the memo said.
• Policymakers may lose patience as they weigh whether the current level of interest rates is high enough to ease price hikes.
• Fed chair Kevin Warsh said politics played no role in pause of interest rate hikes, despite inflation remaining above 3% Fed chair Kevin Warsh said politics played no role in pause of interest rate hikes, despite inflation remaining above 3% The US Federal Reserve left interest rates unchanged on Wednesday during its last board meeting before the midterm elections, keeping rates at one of the highest pre-election levels seen in over 20 years.

Sources

• ABC News - Breaking News, Latest News and Videoslink
• BNP Paribas Asset Managementlink
• CBS Newslink
• Cnbcafricalink
• Fox Businesslink
• KCRAlink
• NPRlink
• The Business Journallink
• The Economic Timeslink
• The Guardianlink
• The Real Economy Bloglink
• Thewealthadvisorlink
• Ticker Newslink
• Tradingpedialink
• Warpbeatlink
• Worthynewslink