WASHINGTON (AP) — The Federal Reserve kept its key rate unchanged Wednesday at about 3.9% despite elevated inflation, while providing little hint about the central bank’s next moves.
“Inflation remains elevated,” the Fed said in a statement released after its two-day policy meeting. Holding off on an increase will allow “the accumulation of more information” that will help determine what policy the Fed should pursue “to ensure a timely return of inflation” to the central bank’s 2% inflation target, the statement said.
The Fed, led by Chairman Kevin Warsh, raised its benchmark rate last month for the first time in three years, defying President Donald Trump’s demands for rate cuts, in an effort to get inflation back to its 2% target in a “timelier” manner. The Fed is tasked by Congress to combat inflation, and it does so by lifting rates to slow borrowing and spending and cool price increases.
Two Fed officials dissented from Wednesday’s decision, with Fed governor Lisa Cook and Federal Reserve Bank of Cleveland President Beth Hammack voting in favor of hiking rates by a quarter point. Cook has been targeted by the Trump administration, which tried to fire her last year, though the Supreme Court in June ruled she could keep her job while litigation played out. No president has fired a Fed governor before, a sign of the Fed’s longstanding independence from day-to-day politics. Trump renewed his attempt to remove Cook last month by setting up a committee to look into allegations Cook committed mortgage fraud, which she has denied.
THIS IS A BREAKING NEWS UPDATE. Check back for updates. AP’s earlier story follows below.
WASHINGTON (AP) — The Federal Reserve is expected to stand pat on interest rates Wednesday even though inflation has accelerated in the past couple of months as the Iran war has caused spikes in oil and gas prices.
The Fed’s latest policy meeting concludes less than a week before the midterm elections, which have focused heavily on concerns about the cost of living and affordability. Consumers have generally soured on an economy weighed down by more expensive gas, groceries, and clothing, among other items.
The Fed, led by Chairman Kevin Warsh, wants to return inflation to its 2% target, which it typically does by raising its short-term interest rate. Higher borrowing costs, over time, can cool spending and slow inflation. The Fed raised its key rate last month for the first time in three years, from about 3.6% to 3.9%, in what many investors and economists perceived was a first step toward a renewed effort to bring down inflation.
Yet Warsh faces a host of challenges in achieving that goal. President Donald Trump slammed the Fed for raising its key rate last month, though he largely blamed the central bank’s rate-setting committee, rather than Warsh, whom he appointed. And some of the forces driving inflation — specifically the rapid buildout of artificial intelligence infrastructure and higher energy prices — won’t easily be tamed by higher interest rates.
At the same time, other parts of the economy are already being hit by higher rates, which were lifted by market forces, even before the Fed hiked last month. The average 30-year mortgage rate reached a three-year high of 7.4% earlier this month, though it has since slipped a bit. Higher mortgage rates have made buying a home unaffordable for 5 million more Americans since the beginning of the year, according to Oxford Economics, a consulting firm. Over time, Fed rate hikes can make mortgages, auto loans, and credit card borrowing more expensive, adding to Americans’ sense that things like homes and cars are getting pricier.
After the Fed announces its rate decision, Warsh will speak at a news conference, where his remarks will be closely watched for hints about the Fed’s next steps. He will likely repeat the Fed’s desire for a “timelier” return of inflation to the 2% target. Some may view that as a sign the Fed will boost its key rate at its next meeting, in December, a move already widely expected by Wall Street investors.
If the Fed keeps rates on hold, Warsh will be pushed to explain why the central bank hiked in September but not this month. Inflation picked up in September, when consumer prices rose 3.7% compared with a year earlier. The increase was much bigger than the 2.4% rate in February, just before the Iran war.
And on a monthly basis, the consumer price index — the most widely-followed inflation gauge — rose 0.3% in both August and September. At that pace over a full year, inflation would rise much more quickly than the Fed’s 2% target.
On Thursday, a separate inflation measure more closely followed by the Fed, the personal consumption expenditures price index, is forecast to have jumped 3.6% in September from a year earlier, up from 3.4% in August. Core prices, which exclude the food and energy categories, are forecast to have risen 3.1%, up from 3% the previous month.
Aditya Bhave, head of U.S. economics at Bank of America, said economists and the Fed have gotten too complacent about above-target inflation. Higher oil and gas prices will likely keep inflation elevated for several more months, he said, and rising diesel costs will elevate shipping prices for nearly every type of good, which could spread inflation more broadly through the economy.
“Unless the Fed takes this problem more seriously and stops essentially making excuses about inflation, I think we’re not going to get back to 2% until the next recession,” Bhave said.
Warsh will likely seek to keep the Wednesday press conference relatively short. It was about 30 minutes last month. Warsh’s predecessor, Jerome Powell, often held news conferences for about 45 minutes.
The Fed’s policy meeting is part of a busy week for central banks around the world. The Bank of Canada will also meet Wednesday and is forecast to lift its key rate a quarter point, to 2.5%. Policymakers at the European Central Bank and the Bank of Japan are both scheduled to meet Thursday and are expected to keep their key rates unchanged.
For Warsh and the Fed, another key consideration is that the U.S. economy is growing at a healthy pace and unemployment remains low, at 4.2%, even if hiring is also sluggish. The government will report Thursday on growth for the July-September quarter, which is expected to reach 3%, according to a forecast by data provider FactSet. That would be up from 2.2% in the April-June quarter.
Many economists argue that solid growth is evidence that interest rates aren’t particularly high and the economy could withstand higher rates to combat inflation.