Fed holds interest rates steady even as inflation remains stubborn

The Federal Reserve opted on Wednesday not to adjust interest rates, but signaled it is not retreating from its fight against stubborn inflation. Chairman Kevin Warsh and his colleagues kept the benchmark rate at 3.75% to 4%, a level that helps establish the cost of other short-term lending, such as credit cards. The rate-setting committee renewed its pledge to deliver price stability, a goal complicated by an energy price spike tied to the U.S. war with Iran, and acknowledged in its statement that "inflation remains elevated."

Inflation data since the Fed's September meeting has shown continued acceleration. Consumer prices in September were up 3.7% from a year earlier, a larger annual increase than in the prior month. Dan North, senior economist at Allianz Trade, described the trend as "wrong way," noting that "that inflation line is going up, not down." The decision came less than a week before midterm election votes are tallied, which may have contributed to the Fed's caution. North said a rate hike before the midterms would have been "suspicious."

Fed policymakers are widely expected to raise the benchmark rate at their December meeting to dampen demand and bring prices under control. Lisa Cook and Beth Hammack of the Cleveland Federal Reserve Bank voted for a quarter-point increase on Wednesday, while a majority of policymakers opted to hold. Longer-term rates are set by the bond market but can be influenced by Fed decisions. Mortgage rates climbed to a three-year high of 7.4% earlier this month before easing slightly, and high borrowing costs have weighed on a housing market that has been in a slump for four years.

Some sectors remain less sensitive to tighter policy. Investment in artificial intelligence shows no sign of slowing, and the buildout of AI data centers is pushing up prices for construction materials and electronic equipment. Consumer spending has also stayed resilient, supported in part by upper-income households benefiting from the rising stock market. Less wealthy families face greater strain, as average wages rose only 3% over the 12 months ending in September. Mark Zandi said lower- and middle-income Americans are "having a real struggle" and that their purchasing power is declining, a dynamic he said likely explains much of the public's negative view of the economy.