US Fed holds interest rates steady despite 'too high' inflation

On Wednesday, the US Federal Reserve maintained interest rates, despite Chairman Kevin Warsh asserting that inflation remained too high. The Federal Open Market Committee, comprising 12 members, voted 10-2 to keep rates at a target range between 3.75 to 4.00 percent, citing the need for more data to combat inflation after raising rates for the first time in three years in September.

Two members, Governor Lisa Cook and Cleveland Fed President Beth Hammack, disagreed, calling for an immediate quarter-point rate hike. Warsh stated that the Federal Open Market Committee required additional information to determine the appropriate policy stance to ensure a timely return of inflation to the two-percent goal. The committee is scheduled to meet again in early December.

The Fed's decision came six days before the crucial midterm elections in November, where the Democratic Party aims to seize control of both houses of Congress from President Donald Trump's Republicans. Warsh emphasized that politics did not play a role in the central bank's decision, reaffirming his support for the Fed's independence.

US Treasury Secretary Scott Bessent expressed confidence in Warsh's ability to balance economic growth and inflation. Warsh also announced that the Fed would reduce the frequency of interest rate setting meetings in the next two years, holding eight meetings in 2027 and 2028, but only seven times in 2028 and six times in 2029.

Warsh acknowledged that the economy is growing strongly and questioned whether the investment boom in artificial intelligence was fueling inflation. He questioned whether the economy is running "too hot" or "too strong." Despite the monetary policy stance, the US unemployment rate has remained stable around 4.2 percent over the past year, with positive job growth in specific sectors. Canada's central bank recently raised its key rate to 2.5 percent, its first increase since July 2023.