WASHINGTON, October 28, 2026 (DAILYNWZ) — The Federal Reserve kept interest rates unchanged on Wednesday, holding its benchmark rate at 3.75% to 4% as it awaits more evidence that inflation is easing, while signaling that further increases remain possible despite stronger economic growth.
The decision, approved by a 10-2 vote, leaves borrowing costs unchanged ahead of next week’s US midterm elections. The central bank said inflation “remains elevated” but upgraded its assessment of economic activity, describing growth as proceeding at a “strong pace.”
Speaking after a two-day policy meeting, Fed Chair Kevin Warsh said he expected Thursday’s report on third-quarter gross domestic product to show strong investment and consumer spending, with growth accelerating from the first half of the year. He argued, however, that the economy was not overheating enough to require additional restraint.
“The economy is pointing in the right direction,” Warsh said, adding that most policymakers did not believe activity was running too strongly. He also suggested that productivity gains, including those predating the artificial intelligence boom, could allow the US economy to expand faster without generating as much inflation.
“The goal, in my view … isn’t to throw sand in the gears of the economy and throw people out of work,” he said. “I don’t think we have to do that.”
Warsh said higher interest rates were already tightening credit conditions, potentially slowing business investment and contributing to recent stock market declines. Weaker spending by wealthier households could also help ease price pressures.
The Federal Open Market Committee said further economic data would help determine the appropriate policy stance before its next meeting in December. “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,” it said.
“Two Officials Call For Rate Increases”
Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented from Wednesday’s decision, both favoring a quarter-percentage-point increase. It was Cook’s first dissent on a monetary policy decision, as President Donald Trump continues to target her for removal from the central bank.
The split highlights concerns among some policymakers that strong consumer demand and investment linked to artificial intelligence could keep prices rising. Inflation remains about one percentage point above the Fed’s 2% target, with little progress in recent months.
Oxford Economics chief US economist Michael Pearce said the factors keeping policymakers cautious had not disappeared, pointing to elevated fuel prices, inflation linked to artificial intelligence and a resilient labour market.
Markets reacted modestly. US stocks ended higher after trimming some gains, while longer-term Treasury yields rose. Short-term interest-rate futures edged higher as traders reduced some bets on further increases.
Investors still see an approximately 80% chance of a rate hike at the Fed’s December 8-9 meeting, with another increase considered likely by March.
“Inflation And Politics Complicate The Outlook”
Energy costs, particularly diesel fuel used in shipping and agriculture, remain a source of pressure. The cost of living has also become a central issue in the November 3 elections, which will determine whether Republicans retain control of both chambers of Congress or Democrats gain greater oversight powers, including over the Fed.
Trump has repeatedly criticized the central bank for not cutting rates more aggressively. After its September rate increase, he described some of Warsh’s colleagues as “hostile” and “partisan.”
Warsh said politics played no role in Wednesday’s decision. Treasury Secretary Scott Bessent, speaking to CNBC on Thursday, said the administration remained confident that Warsh would “find the right balance” between bringing inflation down and sustaining economic growth.
The Fed has missed its inflation target for more than five years. Some officials worry that businesses and households are becoming accustomed to faster price increases, potentially making inflation harder to bring under control.