Fed holds rates at 3.75% to 4% despite rising US inflation

The United States Federal Reserve announced on Wednesday that interest rates would stay between 3.75% and 4% after a 10-2 vote. The decision was the central bank's last monetary policy decision before the US midterm elections. The outcome matched expectations. CME FedWatch had put the probability of unchanged rates above 90%.

The Fed described economic growth as strong in the press release announcing the decision. The Fed said geopolitical developments partly explained continued high uncertainty. The Fed described domestic spending as resilient, productivity growth as strong and capital investment as robust. The Fed said employment gains had matched workforce growth and unemployment had barely changed. However, the Fed acknowledged that inflation was still increasing. The Fed said additional information would help determine the policy needed to bring inflation back to the 2% target in a timely manner.

The latest Consumer Price Index report showed annual inflation reaching 3.7% in September, compared with 3.4% in August. Energy prices accounted for much of the monthly increase. The Personal Consumption Expenditures Price Index report is due on Thursday, after the rate decision. The central bank uses the PCE Price Index to evaluate inflation and guide policy decisions.

Michelle Bowman, the Fed's chair for supervision, had advocated waiting for more information earlier this month, signaling that benchmark rates would remain unchanged. Bowman said at this month's International Monetary Fund-World Bank meetings in Bangkok, Thailand, that further action was not urgent. Bowman said policymakers needed time to understand how conditions would develop.

The Fed raised rates last month amid surging inflation, marking the central bank's first increase since July 2023. US President Donald Trump criticized that increase. Trump has repeatedly urged the Fed to lower rates since taking office. Trump wrote on Truth Social at the time that US interest rates should not exceed 1%.

The Fed will hold the next monetary policy meeting on December 8-9 and deliver the year's final rate decision. Current forecasts indicate a quarter-point rate increase.