The Federal Reserve announced on Wednesday that it will keep interest rates unchanged, marking its last monetary policy decision before the midterm elections. This decision comes despite a rise in inflation from 3.4% in August to 3.7% in September. Fed Chairman Kevin Warsh indicated that the central bank plans to reduce its number of meetings for interest rate votes from eight to seven next year and to five by 2028, which he believes will enhance the decision-making process.
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A key factor contributing to the inflation is the increasing prices of gas, diesel, and crude oil, which have significantly impacted consumers. Economists have noted that the effects of rising gas prices are beginning to permeate the broader economy. In its statement following the decision, the Fed acknowledged the inflation issue but stated it requires more data before implementing any rate hikes. They noted, “Inflation remains elevated. 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 Fed’s preferred inflation measure, the personal consumption expenditures price index, is set to be released on Thursday, and it’s anticipated to reach 3.7%. Economists at Morgan Stanley suggested that the Fed might continue tightening monetary policy, depending on incoming data.
At a post-meeting news conference, Warsh commented, “As we widen the frame to survey the broad economic and financial picture, real activity is clearly pointing in the right direction. That’s good news, but inflation is too high.” He added that energy prices have increased again recently and emphasized the Fed’s responsibility to manage the impact of price changes across the economy.
The vote on Wednesday was not unanimous; two officials, including Governor Lisa Cook and Cleveland Fed President Beth Hammack, dissented in favor of a rate hike. Cook’s dissent was notable as it was her first, especially in light of President Donald Trump's efforts to remove her from her position.
Polls indicate that rising prices, particularly in housing and energy, are major concerns for voters. An NBC News poll recently reported that Trump holds a 27% approval rating regarding his handling of the cost of living.
Warsh stated that the midterm elections and political considerations had no influence on the decision to maintain current rates. He also defended Fed officials in light of Trump’s comments suggesting hostility toward the administration, stating, “We just came out of a heck of a family fight, serious, sober discussion. I think we came to the right policy decision for this moment, and I’m honored to be here.”
The central bank acknowledged ongoing economic anxiety but noted that economic activity is still expanding robustly. “While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient,” said the Federal Open Market Committee. Wednesday's decision sets the groundwork for a potential rate increase in December.