Fed Holds Rates Steady at 3.9% Ahead of Midterms

The Federal Reserve held its benchmark interest rate steady on Wednesday.

Chairman Kevin Warsh indicated that recent policy moves are beginning to influence economic behavior.

The central bank set the key rate at approximately 3.9%, a level maintained despite persistent inflation.

A statement issued after the two-day meeting explained that holding rates allows for the accumulation of more data.

This additional information will help determine the path needed to return inflation to the 2% target.

Warsh stated at a news conference that politics played no role in the decision.

Two Fed officials dissented from the vote, preferring a quarter-point increase.

Governor Lisa Cook and Cleveland Fed President Beth Hammack voted for a hike.

Cook's dissent marks her first since her appointment in 2022.

Trump renewed his effort to remove Cook by establishing a committee to investigate mortgage fraud allegations she denies.

The Supreme Court allowed Cook to remain in her position while that litigation proceeds.

Inflation remains a central challenge for the Fed's policy framework. The consumer price index showed a 3.7% year-over-year increase in September. A more closely watched measure, the personal consumption expenditures price index, is forecast to show a 3.6% rise for the same period. Core prices are expected to climb to 3.1% from 3.0% in August. The Fed aims to bring these figures down to 2% in a timely manner. It last raised rates in September, a move that defied presidential calls for cuts. Warsh noted that credit conditions have tightened for some businesses and households. He specifically cited large tech firms borrowing to build data centers as a sector where higher rates exert cooling pressure. Warsh asked if interest rates matter, answering that they do and are not divorced from the rest of the economy. Some forces driving prices, such as AI infrastructure buildout and energy costs, may not respond easily to rate hikes. The decision comes six days before a midterm election focused on cost of living. Warsh denied the election influenced the policy choice. He said he heard no mention of politics during the two-day meeting. The average 30-year mortgage rate hit 7.4% earlier this month, a three-year high. Oxford Economics estimates that higher mortgage rates have made homebuying unaffordable for 5 million more Americans since the start of the year. The U.S. economy grew at a pace likely above 3% in the third quarter, up from 2.2% in the second. Unemployment stands at 4.2%. Many economists view this solid growth as evidence that the economy can withstand higher rates. The Fed's decision aligns with actions by other central banks. The Bank of Canada raised its rate to 2.5% earlier in the week. The European Central Bank and the Bank of Japan are expected to hold their rates steady on Thursday. Investors anticipate the Fed may hike rates by a quarter point at its next meeting on December 8 and 9.