Fed holds rates days before US midterms as two officials push for another hike

The Federal Reserve held its benchmark interest rate at 3. 75% to 4% on Wednesday, pausing after raising borrowing costs in September for the first time in three years. However, policymakers were split 10-2, with Fed Governor Lisa Cook, whom US President Donald Trump is trying to remove, and Cleveland Fed President Beth Hammack both voting for another quarter-point hike.

The decision came less than a week before Americans vote in the midterms, and with inflation at 3. 7% and energy prices elevated, markets still expect the central bank to raise rates again in December. The split marks a break from September, when the Fed's rate-setting committee voted unanimously for a hike.

Dallas Fed President Lorie Logan, who had also been tipped to vote for higher rates, backed the decision. Some economists had argued that dissents could even help Fed Chair Kevin Warsh by showing that there was still support on the committee for tighter monetary policy. In its statement, the Fed said that "inflation remains elevated", adding that gathering more information would help it decide on the policy stance needed "to ensure a timely return of inflation" to its 2% target, and repeated that it "will deliver price stability".

The wording keeps the Fed's options open. In September, it said its hike would support a "timelier" return to its target. The Fed also upgraded its view of the economy, saying activity was "expanding at a strong pace", compared with a "solid pace" in September, while uncertainty remained elevated "owing, in part, to geopolitical developments".

In June and July, the first two meetings Warsh chaired, it had pointed instead to "the conflict in the Middle East", and blamed above-target inflation partly on supply shocks in sectors "including energy". Since September, it has dropped both references, becoming less specific about the Iran war in the statements. As of the last hike, several senior officials have played down the urgency of moving again.

Vice Chair Philip Jefferson pointed to a sharp rise in longer-term borrowing costs, while New York Fed President John Williams said there was "no need for urgency". Cook's dissenting vote comes as US President Donald Trump presses ahead with his efforts to remove her over mortgage fraud allegations she denies. He has set up a three-person committee to recommend whether he has cause to fire Cook, who was appointed by former US President Joe Biden, and she is expected to appear before it next week.