Fed Holds Rates at 3.7% Inflation as Cook Dissents

Inflation accelerated to 3.7% in September, a sharp jump from 3.4% in August, prompting the Federal Reserve to hold interest rates steady on Wednesday. This was the committee's final monetary policy vote before the midterm elections. The surge was driven largely by higher costs for gasoline, diesel, and crude oil.

The decision to pause tightening split the committee. Governor Lisa Cook and Cleveland Fed President Beth Hammack voted to raise rates, marking the first dissent of Cook's career. This vote stands in contrast to September's unanimous 12-0 decision for the first rate increase since 2023. President Donald Trump is currently attempting to fire Cook.

Fed Chair Kevin Warsh defended the hold during a news conference, stating that real economic activity is moving in the right direction, though inflation remains too high. He emphasized that the Fed must prevent price changes in specific sectors from spreading across the broader economy. The committee described domestic spending as resilient and economic expansion as strong, despite elevated uncertainty from geopolitical developments.

Morgan Stanley economists noted that the current situation suggests the Fed may not be finished raising rates. They said future hikes will depend on incoming data, including the personal consumption expenditures price index, which is expected to hit 3.7% when released Thursday.

Political pressure surrounded the decision, with voters citing rising housing and energy costs as their top concerns. An NBC News poll showed President Trump's approval rating at 27% on the cost of living and 29% on the Iran war. Two-thirds of Americans described soaring gas prices as a serious problem, and more than half reported changing their grocery purchases due to economic conditions.

Warsh stated that politics played no role in the vote. He described the committee's deliberations as a serious and sober discussion, asserting that they reached the correct decision for the current moment. He also announced a schedule change, cutting the number of rate voting meetings from eight to seven next year and by two in 2028 to improve decision quality.

The Fed's post-decision statement acknowledged that inflation remains elevated. It said the accumulation of more information would help the committee determine the appropriate policy stance to return inflation to the 2 percent goal. Wednesday's announcement sets the stage for a possible rate increase at the December meeting.