The Federal Reserve has held interest rates steady at between 3.75% and 4%, following last month’s increase in borrowing costs as officials continue efforts to bring elevated inflation under control.
The central bank said economic activity was growing at a “strong pace”, while acknowledging that inflation remained above its 2% target. It said more information would help policymakers decide the appropriate course for interest rates.
Ten members of the Federal Open Market Committee voted to leave the federal funds rate unchanged. Two members, Fed Board Governor Lisa Cook and Cleveland Federal Reserve Bank president Beth Hammack, dissented in favour of a 0.25 percentage-point increase.
Investors and Wall Street analysts had broadly expected the pause. However, economists believe the Federal Reserve could raise rates at its final meeting of the year in December, with further increases possible in 2027.
“The two hawkish dissents, the wording of the policy statement, and prior comments from officials all suggest the central bank will hike rates in December,” said Michael Pearce, chief US economist at forecasting firm Oxford Economics.
Samuel Tombs, chief US economist at Pantheon Macroeconomics, said financial markets were pricing in a further 0.75 percentage points of tightening over the next year as the Fed seeks to reduce inflation.
Prices have been pushed higher by elevated global energy costs, while solid economic growth and continued consumer spending have added to pressure on the Federal Reserve. The Consumer Price Index rose at an annual rate of 3.7% last month, while core inflation, excluding food and energy, increased by 2.6%.
What the Federal Reserve decision means for borrowers
The federal funds rate, which governs overnight lending between banks, influences borrowing costs across the US economy. Changes can affect bank loans, credit cards and car finance, as well as returns on savings accounts.
Consumers could still face higher borrowing costs despite Wednesday’s decision. Matt Schulz, chief consumer finance analyst at LendingTree, said some loan rates might continue to rise ahead of the holiday shopping season.
“Even though the Fed is leaving rates alone this month, it might raise rates again at its last meeting of the year in December,” Mr Schulz said. “That is far from guaranteed, but it is something that Americans should be aware of.”
Fed chairman Kevin Warsh was due to discuss the decision at a press conference. Since taking over from Jerome Powell in May, Mr Warsh has stressed the central bank’s commitment to restoring price stability and returning inflation to its 2% target.
