Federal Reserve holds interest rates steady despite elevated inflation

The U.S. Federal Reserve held its benchmark interest rate steady at 3.75% to 4% on October 28, 2026, taking a pause following a September rate increase. The decision comes days before the midterm elections as inflation reached 3.7% in September, exacerbated by high energy costs from war in the Middle East. While two policy members dissented in favor of a rate increase, Fed Chair Kevin Warsh maintained that politics played no role in the decision, though economists widely expect a rate hike in December.

Federal Reserve interest rate decision

• ▪Federal Reserve Chairman Kevin Warsh stated that the Federal Reserve held interest rates unchanged to gather more economic information and determine the policy stance necessary to return inflation to its 2% target
• ▪Federal Reserve Chairman Kevin Warsh described the October 2026 Federal Open Market Committee policy deliberations as a serious and sober debate among board members
• ▪Ten members of the Federal Open Market Committee voted in October to keep interest rates unchanged, while Federal Reserve Board Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented, voting to raise rates by 0.25 percentage points to 4%-4.25%
• ▪The Federal Reserve held the benchmark federal funds rate steady at a target range of 3.75% to 4%

Elevated inflation pressures

• ▪Federal Reserve Chairman Kevin Warsh noted that while consumer spending, capital expenditures, and employment remain robust, U.S. inflation has exceeded the Federal Reserve's 2% objective for nearly six years
• ▪The Consumer Price Index rose at a 3.7% annual rate in September 2026, up from 3.4% in August, while core inflation increased 2.6% from a year ago
• ▪High global energy costs driven by the Middle East war with Iran, including oil briefly trading above $117 a barrel following a closure of the Strait of Hormuz, have sustained U.S. inflation

Outlook for future interest rates

• ▪Federal Reserve Chairman Kevin Warsh declined to specify whether the Federal Reserve will raise interest rates at its upcoming meeting on December 8-9, 2026
• ▪Economists from Oxford Economics and Pantheon Macroeconomics expect the Federal Reserve to raise interest rates at its December 8-9, 2026 meeting and tighten policy further in 2027

Political pressure and midterm elections

• ▪The Federal Reserve's October 28, 2026 interest rate decision was its final policy meeting before the U.S. midterm elections, where voters cite affordability and the economy as top issues
• ▪Federal Reserve Chairman Kevin Warsh stated that politics played no role in the Federal Reserve's October 2026 interest rate decision

Federal Reserve operational changes

• ▪Federal Reserve Chairman Kevin Warsh stated that task forces he created, including the Fed task force focused on AI, may not wrap up their work by the end of 2026 as promised
• ▪Federal Reserve Chairman Kevin Warsh announced that the Federal Reserve will reduce its rate-setting meetings from eight to seven per year starting in fall 2027, and to six in 2028, to dedicate sessions to broad monetary strategy