Washington — The United States Federal Reserve held its benchmark interest rate steady on Wednesday, keeping borrowing costs in a range of 3.75% to 4% even as its own statement conceded that inflation “remains elevated.”
The decision, taken by the rate-setting Federal Open Market Committee, was not unanimous. Ten officials voted to hold; two — Governor Lisa Cook and Cleveland Fed President Beth Hammack — voted instead to raise rates by a quarter of a percentage point. It was Cook’s first dissent on a policy decision, and Hammack had dissented on the same grounds in July.
“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 2 percent goal,” the committee said in its statement. “The Committee will deliver price stability.”
The hold follows the Fed’s September increase — its first in more than three years — which lifted the benchmark to its current range. Since then, the inflation picture has worsened rather than improved. Consumer prices rose 3.7% in the year to September, up from a 2.4% pace in February, before the United States’ war with Iran sent energy prices climbing. Producer prices jumped 6.3% over the same period, a sign that cost pressures are still working their way through the economy.
Yet the statement also upgraded the Fed’s read on the economy, describing activity as “expanding at a strong pace,” up from “solid” in September. Domestic spending has stayed resilient, productivity growth is strong and capital investment robust, the committee said. Job gains have kept pace with the workforce and the unemployment rate has changed little — a steadier labour picture than a weaker-than-expected September jobs report had suggested.
The timing did not go unnoticed. The decision landed less than a week before Americans vote in midterm elections, and a rate rise so close to polling day would have invited accusations that the central bank was taking sides. President Donald Trump, who has argued the Fed should be cutting rates, has also sought Cook’s removal from the board — a backdrop that made her dissent, in favour of tighter policy, all the more striking.
Markets took the hold largely in their stride. The S&P 500 edged up 0.1% and the Nasdaq slipped 0.1% after the announcement, while the yield on the 10-year Treasury note rose to 5.047%. The muted reaction was no surprise: futures markets had priced in roughly a 93% chance of a hold before the announcement. What traders are watching now is December, where they put the odds of a quarter-point rise at around four in five.
“It’s ‘wrong way,’” Dan North, a senior economist at Allianz Trade, said of the inflation trend. “That inflation line is going up, not down.”
Why this matters beyond Washington: the Fed’s rate is the anchor for borrowing costs around the world. A hold keeps mortgage, car-loan and credit-card rates in the US where they are for now, but the prospect of another rise in December means relief is not on the way — and a strong dollar, propped up by high US rates, keeps borrowing dearer for governments and companies abroad. With affordability now the defining economic issue ahead of the midterms, the Fed’s next move will be read as much as a political signal as an economic one.
Federal Reserve Chair Kevin Warsh spoke to reporters at a news conference after the announcement, with investors listening for any hint of what would trigger the next move. The statement gave little away: more data, the committee said, will decide it.
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