Fed Holds Rates at 3.75%-4% as Hammack, Cook Dissent Favoring Hike
The Federal Reserve kept its benchmark rate at 3.75% to 4% on Wednesday in a split vote, five days before the midterm elections. Two officials wanted a hike as…
The Federal Reserve held fire on interest rates on Wednesday, keeping its benchmark rate in a range of 3.75% to 4% even as new inflation reports show prices rising again. The decision came less than a week before the midterm elections.
It was not unanimous. The central bank voted in a split decision after raising rates last month for the first time in more than three years.
Two officials wanted a hike
Cleveland Fed president Beth Hammack and Fed governor Lisa Cook broke ranks. Both preferred raising rates by a quarter percentage point. It is the second time since July that Hammack has dissented in favor of a hike, and Cook's first dissent in her tenure.
Hammack said a few weeks ago that she prefers more frequent, smaller rate adjustments so an inflationary mindset does not take hold. She believes inflation is broad-based and will take time to come back down.
Other officials have also called for further hikes while leaving the timing flexible. But key leaders on the rate-setting committee had signaled the central bank should take time to monitor whether inflation falls in a timely manner.
Inflation has accelerated since the September hike
The latest data explains the dissent. The Consumer Price Index rose 3.7% last month, up from 3.4% in August. Core CPI, which strips out volatile food and energy prices and is the way the Fed likes to scrutinize underlying inflation, rose 2.6%, compared with 2.4% in August.
Wholesale prices jumped more than 6% last month. The Fed's preferred gauge, the core Personal Consumption Expenditures Price index, is due out Thursday and is projected to top 3%.
For households, that means the price pressures the Fed is fighting have not eased, and borrowing costs remain tied to a central bank still weighing further increases.
Warsh: 'We're working on it'
Fed Chairman Kevin Warsh acknowledged at a press conference that the job is unfinished. He said the committee's overwhelming judgment is that the "monetary medicine" is "starting to work some, but there's no firm conclusions."
"I'm encouraged by the progress we've made in a short period of time," Warsh said. He conceded that price stability has not been achieved. "But we're working on it."
The policy statement was adjusted to say that "the accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the committee's 2% goal." Officials also said uncertainty remains elevated in part due to geopolitical developments, while domestic spending has been resilient and productivity and capital investment are strong.
Politics and a new meeting format
President Trump has asserted that the central bank's interest rate policy is hurting the economy more than inflation. Warsh rejected any political motive. "Politics played no role in the decision," he said.
Warsh also announced a change to the Federal Open Market Committee's schedule beginning next year. It will still meet eight times a year, but one meeting will "focus exclusively on broad monetary policy strategy, with neither a vote on the federal funds rate nor a policy statement anticipated." In 2028, two meetings will be dedicated to strategy and six to setting policy.
The committee meets again in six weeks, on Dec. 9. The CME FedWatch tool currently shows traders pricing in 86% odds of a quarter-point hike at year-end.
Source: finance.yahoo.com
