The Federal Reserve left its benchmark interest rate unchanged Wednesday, holding it at a range of 3.75% to 4%, six days before the midterm elections. The decision came as inflation continues to run well above the central bank’s 2% target.

The decision followed a rate increase in September, the Fed’s first hike since 2023. It was not unanimous. Two officials, Cleveland Fed President Beth Hammack and Governor Lisa Cook, voted for another quarter-point increase. Hammack had also dissented in favor of a hike in July, while this was Cook’s first dissent.

Warsh: “Politics played no role”

Speaking at a news conference in Washington, Fed Chair Kevin Warsh said politics did not influence the decision. He said policymakers were waiting for more data before deciding on the next step. “The committee believes the accumulation of more information will help it determine the policy stance appropriate to ensure a timely return of inflation to the 2% goal,” he said.

Warsh described economic growth as positive and said the committee’s judgment was that the September increase was “starting to work some,” though he said there were no firm conclusions yet. He also repeated his reluctance to use forward guidance, the practice of signaling the likely future path of interest rates.

Warsh announced that the Fed will hold seven rate-setting meetings in 2027, down from eight this year.

Inflation and energy costs

Consumer prices rose 3.7% in September from a year earlier, according to Bureau of Labor Statistics data cited by news outlets. That is up from 3.4% in August and more than a percentage point above the Fed’s target. Higher fuel costs, tied to unrest in the Middle East, have been a major factor. Gasoline, diesel, and crude oil prices have pushed up costs across the economy.

The Fed’s current range is well below the peak reached in 2023, but far above the near-zero level set at the start of the COVID-19 pandemic. The benchmark rate influences borrowing costs for credit cards, auto loans, and other short-term lending, and it indirectly affects mortgage rates.

Political context

The meeting was the Fed’s last before the Nov. 3 midterm elections, which put the decision under added scrutiny. President Donald Trump has publicly pushed for lower interest rates, arguing that cheaper borrowing would ease cost-of-living pressures and support housing. The Fed’s move to raise and then hold rates runs counter to that position.

Economists have long debated how a central bank’s timing interacts with the election calendar. The Fed is designed to operate independently of the White House and Congress, and its officials routinely say they set policy based on economic data rather than electoral considerations. Some analysts noted that the proximity of the vote may have encouraged caution. Others said the committee’s willingness to raise rates in September suggested inflation was the dominant concern.

Some market commentators questioned the decision itself. One investment manager said the Fed should be raising rates rather than pausing. Another suggested the pause undercut the central bank’s earlier hawkish stance. Warsh rejected the idea that politics was a factor.

Household pressures

Many households continue to report financial strain even as the Fed describes economic activity as expanding. Economists point to wages that have struggled to keep pace with the cost of groceries, fuel, and other everyday goods. Elevated borrowing costs also weigh on housing affordability and consumer credit. Affordability has been a prominent theme in campaign messaging heading into the elections.

What comes next

Investors widely expect the Fed to raise rates at its next meeting in December if inflation does not ease, and the central bank has said it remains committed to price stability. The path will depend heavily on external factors, including energy prices, geopolitical developments in the Middle East, and supply chains, as well as incoming data on jobs and inflation.

For policymakers, the challenge is to bring inflation down without sharply slowing growth or the labor market. How successfully they do so is likely to remain a central question for markets, businesses, and voters.