Fed Holds Rates Steady as Inflation Rises to 3.7% Before Midterms

The Federal Reserve voted Wednesday to keep interest rates unchanged, its last monetary policy decision before the midterm elections. The decision came as annual inflation accelerated to 3.7% in September from 3.4% in August, driven largely by the rising costs of gasoline, diesel and crude oil.

The central bank's statement acknowledged that "inflation remains elevated" but said the committee requires additional information to set policy appropriate for returning inflation to its 2% goal. Chairman Kevin Warsh told reporters that real activity is pointing in the right direction, adding that "inflation is too high." He said the Fed's task is ensuring that relative price changes in some sectors do not broaden out across the economy. Warsh stated that the midterms and politics "played no role in the decision."

The vote was not unanimous. In September, the committee voted 12-0 to raise rates for the first time since 2023. On Wednesday, governor Lisa Cook and Cleveland Fed President Beth Hammack dissented in favor of a hike. The vote marked the first dissent of Cook's career, coming as President Donald Trump attempts to fire her.

Warsh also announced that the central bank will reduce the number of meetings at which it votes on rates from eight to seven next year, with two fewer in 2028. He said the schedule change would improve the quality of its decisions. The committee described economic activity as expanding at a strong pace and domestic spending as resilient, while noting that uncertainty remains elevated partly because of geopolitical developments.

The Fed's preferred inflation gauge, the personal consumption expenditures price index, is due Thursday and is expected to reach 3.7%. Economists at Morgan Stanley said the situation suggests the Fed may not be finished tightening, and that future rate hikes will depend on incoming data. Two-thirds of Americans called soaring gas prices a very or somewhat serious problem, according to the latest NBC News poll, which also put Trump's approval at 27% on the cost of living.

Wednesday's announcement sets the stage for a possible rate increase at the December meeting.

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