Fed Holds Rates Steady at 3.9% Amid Persistent Inflation Pressures

The Federal Reserve held its benchmark interest rate steady on Wednesday, leaving the key policy rate near 3.9% despite persistent price pressures.

The central bank’s two-day meeting concluded with a statement noting that inflation remains elevated. Officials cited the need to gather more data before deciding on future policy moves to return inflation to the 2% target. This decision follows a rate hike last month, the first in three years, which went against President Donald Trump’s calls for lower rates.

Chairman Kevin Warsh addressed the timing of the decision at a news conference held on Wednesday. He stated that politics played no part in the vote, despite the meeting ending just six days before the midterm election. Warsh said he spent two days with colleagues without hearing a single mention of politics.

Warsh indicated that Fed officials believe current measures are beginning to work. He noted that credit conditions have tightened for some businesses and households. Specifically, he argued that higher rates will cool investment in artificial intelligence infrastructure, as large tech firms increase borrowing to build data centers.

Two Fed officials dissented from the decision to hold rates. Governor Lisa Cook and Federal Reserve Bank of Cleveland President Beth Hammack voted in favor of a quarter-point increase. Cook’s dissent marks the first since her appointment to the board by President Joe Biden in 2022.

Cook has faced pressure from the Trump administration, which attempted to remove her from her position last year. The Supreme Court ruled in June that she could retain her job while litigation continues. Trump renewed his push for her removal last month by forming a committee to investigate allegations of mortgage fraud, which Cook has denied.

Market data shows the economic impact of rising borrowing costs. The average 30-year mortgage rate hit a three-year high of 7.4% earlier this month. According to Oxford Economics, higher rates have made homeownership unaffordable for 5 million more Americans since the start of the year.

The next inflation data release is scheduled for Thursday. The personal consumption expenditures price index is forecast to show a 3.6% year-over-year increase for September, up from 3.4% in August. Core prices, excluding food and energy, are expected to rise 3.1%. The Fed also noted that the U.S. economy is growing at a healthy pace, with unemployment at 4.2% and third-quarter growth likely exceeding 3%.