Fed keeps rates unchanged despite inflation jump to 3.7%

The Federal Reserve decided Wednesday to hold interest rates steady. This marks the final monetary policy decision before the midterm elections. The vote came as annual inflation rose from 3.4% in August to 3.7% in September.

Fuel costs drove much of the price increase. Gasoline, diesel, and crude oil prices climbed, creating pressure on consumers. Economists noted that these higher energy costs are now spreading to other sectors of the economy.

The committee’s post-decision statement acknowledged the elevated inflation. It stated that gathering more information would help determine the appropriate policy stance to return inflation to the 2% goal. The Fed’s preferred inflation gauge, the personal consumption expenditures price index, is scheduled for release Thursday. Morgan Stanley economists expect that figure to match the 3.7% rate.

The vote was 11-2. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented in favor of a rate hike. Cook’s vote was the first dissent of her career. President Donald Trump is currently attempting to fire Cook. In September, the committee voted unanimously to raise rates, marking the first increase since 2023.

Chairman Kevin Warsh announced a change to the meeting schedule. The central bank will reduce the number of rate voting meetings from eight to seven next year. The number will drop by two more in 2028. Warsh said this change would improve the quality of the bank's decisions.

During a news conference, Warsh described economic activity as expanding at a strong pace. He noted that domestic spending remains resilient. However, he stated that inflation is too high and that the Fed must prevent relative price changes in specific sectors from broadening across the entire economy. He said the midterms and politics played no role in the decision.

Political pressure remains high on the Fed. A recent NBC News poll found that 27% of Americans approve of Trump on the cost of living. Two-thirds of voters called soaring gas prices a serious problem. More than half said economic conditions changed the groceries they buy. Warsh defended his colleagues against Trump’s claims of hostility, describing the committee’s discussion as a serious and sober family fight. The current stance sets the stage for a possible rate increase at the December meeting.