Fed Holds Interest Rates Steady as US Inflation Climbs Ahead of Midterm Elections

The United States Federal Reserve left interest rates unchanged on Wednesday, making its last monetary policy decision before the US midterm elections. The central bank held its benchmark rate at 3.75 to 4 percent after a 10-2 vote, a result that matched market expectations.

Ahead of the announcement, the CME FedWatch tool, which tracks the odds of policy moves, had put the chance of rates staying put at more than 90 percent.

In its statement, the Fed described a healthy economy. "Economic activity is expanding at a strong pace," it said, adding that uncertainty remains elevated, in part because of geopolitical developments. The central bank said domestic spending has been resilient, productivity growth is strong and capital investment is robust. It also noted that job gains have kept pace with the workforce and that the unemployment rate has changed little.

The statement acknowledged, however, that inflation continues to rise. The Fed said gathering more information will help the Committee decide which policy stance is appropriate to ensure a timely return of inflation to its 2 percent goal.

The latest Consumer Price Index report showed annual inflation increasing to 3.7 percent in September from 3.4 percent in August. Energy prices were largely responsible for the monthly jump.

Signs of a pause emerged earlier this month. Michelle Bowman, the Fed's chair for supervision, argued for a "wait and see" approach at the International Monetary Fund and World Bank meetings in Bangkok, Thailand. "I don't feel any urgency for taking further action at this point," she said, adding that policymakers need to take time to understand how conditions will evolve.

The decision arrives one day before the release of the Personal Consumption Expenditures Price Index report on Thursday. The central bank uses that measure to assess inflation and guide its decisions.

The hold follows a rate increase last month, made amid surging inflation, which was the Fed's first hike since July 2023. The move drew criticism from President Donald Trump, who has repeatedly pressed the Fed to cut rates since taking office. At the time, he wrote on Truth Social that "interest rates in the United States should be 1% or less."

The Fed's next policy meeting is set for December 8 and 9, when it will announce its final rate decision of the year. Current forecasts point to a quarter-point increase.