The Federal Reserve held its key interest rate steady at 3.9% on Wednesday, despite ongoing high inflation. Chairman Kevin Warsh suggested that current policies are beginning to have an impact, but the Fed wants more data before making further moves. The central bank raised rates last month for the first time in three years, defying President Donald Trump’s calls for cuts, to combat inflation and meet its 2% target.
Warsh emphasized that politics played no role in the decision, which came just days before a midterm election focused on affordability concerns. He noted that energy prices have risen again, and the Fed remains committed to controlling inflation. Economists still expect another quarter-point hike at the next meeting in December, with Wall Street placing the odds at nearly 85%.
Higher interest rates could slow investments in artificial intelligence infrastructure and other sectors reliant on borrowing. Warsh acknowledged that credit conditions are tightening for some businesses and households. Meanwhile, mortgage rates have surged to a three-year high of 7.4%, making homeownership unaffordable for millions more Americans this year.
Two Fed officials dissented, voting for a rate hike, signaling ongoing support for further increases. The Fed also announced changes to its meeting schedule starting next year, with one meeting in 2027 and two in 2028 focusing on strategy rather than rate votes. Despite these adjustments, the economy continues to grow at a healthy pace, with unemployment at 4.2% and growth likely exceeding 3% in the latest quarter.