Fed holds rates at 4 percent ceiling as inflation hits 3.7 percent

The Federal Reserve left its benchmark lending rate unchanged on Wednesday, ending a cycle of hikes just before the US midterm elections. The 10-2 vote kept the target range at 3.75 to 4 percent, a move that aligned with market predictions. The CME FedWatch tool had previously calculated the probability of a pause at over 90 percent.

The central bank justified the hold by pointing to a strengthening domestic economy. Its statement noted that economic activity is expanding at a strong pace. Officials cited resilient consumer spending, strong productivity growth, and steady capital investment. Labor data showed job gains matching workforce growth, while the unemployment rate remained stable.

Inflation remains the primary concern. The Federal Reserve acknowledged that price pressures continue to rise. The latest Consumer Price Index data showed annual inflation jumping to 3.7 percent in September from 3.4 percent in August. Energy prices accounted for the majority of that monthly increase. The bank said it needs more information to determine if its current policy stance is sufficient to return inflation to the 2 percent target.

Michelle Bowman, the Fed's chair for supervision, signaled the pause earlier this month during meetings in Bangkok, Thailand. She argued for a wait and see approach. "I don't feel any urgency for taking further action at this point," Bowman said. She emphasized the need for policymakers to understand how economic conditions evolve before making further moves.

The decision comes one day before the release of the Personal Consumption Expenditures Price Index report. The Fed relies on that specific measure to guide its monetary policy. The recent hold follows a rate increase in September, which marked the bank's first hike since July 2023. That previous move drew criticism from President Donald Trump, who has consistently pushed for lower rates. He posted on Truth Social that US interest rates should be 1 percent or less.

The next scheduled policy meeting is set for December 8 and 9. That session will determine the final rate action for the year. Current market forecasts suggest a quarter-point increase is likely at that meeting.