Fed Pauses Rates at 3.7% Inflation Ahead of Midterms

The Federal Reserve made its final monetary policy decision before the midterm elections, choosing to hold interest rates steady on Wednesday.

Inflation has accelerated from an annual rate of 3.4% in August to 3.7% in September. The committee’s decision to pause came as consumers faced higher costs for gasoline, diesel, and crude oil.

The central bank stated that inflation remains elevated. The committee indicated it needs more information before deciding on a rate increase to ensure a timely return to its 2 percent goal. The Fed’s preferred inflation gauge, the personal consumption expenditures price index, is due out Thursday and is expected to reach 3.7%.

The vote was not unanimous. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented in favor of a hike. This marked the first dissent of Cook’s career. The committee had voted 12-0 to raise rates in September, the first increase since 2023. President Donald Trump is currently attempting to fire Cook.

Fed Chairman Kevin Warsh announced that the central bank will cut the number of meetings at which it votes on rates from eight to seven next year. The schedule will shrink by two more meetings in 2028. Warsh said the change would improve the quality of the committee's decisions. He also noted that real activity is pointing in the right direction, though inflation remains too high.

The committee described economic activity as expanding at a strong pace with resilient domestic spending. Uncertainty remains elevated in part because of geopolitical developments. Warsh said the Fed’s job is to ensure that relative price changes in some sectors do not broaden out across the economy.

Politics hovered over the decision. The latest NBC News poll put Trump's approval at 27% on the cost of living and 29% on the Iran war. Two-thirds of Americans called soaring gas prices a very or somewhat serious problem. More than half said economic conditions had changed the groceries they buy. Warsh said the midterms played no role in the decision and described the committee's discussion as a serious, sober family fight.