Two officials favored a hike as Federal Reserve holds interest rates steady despite elevated inflation

Fed Pauses as Inflation Persists

The Fed kept its benchmark rate near 3.9% after a two-day policy meeting. In its statement, the central bank said inflation remains elevated and that waiting would allow officials to gather more information before setting policy.

The Fed aims to return inflation to its 2% target. It raised rates by a quarter point last month, its first increase in three years, to slow borrowing and spending and ease price pressures.

Next Rate Move Remains Unclear

Officials had indicated last month that another increase could come this year. Futures markets also showed investors expecting a hike in December, but Wednesday’s statement did not make clear whether the Fed still favors that path.

Fed Chairman Kevin Warsh was expected to address the outlook at a news conference. The decision came six days before a midterm election in which the cost of living and affordability have featured prominently.

Two Officials Backed an Increase

Fed governor Lisa Cook and Beth Hammack, president of the Federal Reserve Bank of Cleveland, dissented from the decision and supported raising rates by a quarter point. It was Cook’s first dissent since joining the board in 2022.

The Trump administration tried to remove Cook last year, but the Supreme Court ruled in June that she could remain in her job while litigation continued. Trump renewed efforts to remove her last month through a committee examining mortgage fraud allegations, which Cook has denied.

Prices and Borrowing Costs Weigh

Consumer prices rose 3.7% in September compared with a year earlier, up from 2.4% in February. The consumer price index increased 0.3% in both August and September; maintaining that monthly pace for a year would put inflation well above the Fed’s target.

The Fed’s preferred personal consumption expenditures price index was due Thursday. It was forecast to rise 3.6% year over year in September, compared with 3.4% in August; core prices were forecast at 3.1%, up from 3%.

Higher borrowing costs are already affecting households. The average 30-year mortgage rate reached 7.4% earlier this month, a three-year high, before slipping somewhat. Oxford Economics estimates higher mortgage rates have made home buying unaffordable for 5 million more Americans since the start of the year.