US Fed holds rates steady, hints more hikes may come

The US Federal Reserve held interest rates steady on Wednesday, delaying any change until after next week’s midterm elections, but signalled that more rate hikes may be needed because inflation “remains elevated”, Geo News reported.

The Fed kept its benchmark rate in a 3.75pc to 4pc range in a 10-2 vote, and upgraded its view of the economy, which it said is growing at a “strong pace”.

Two votes for a hike

• Lisa Cook: the Fed governor, whom President Donald Trump is trying to remove, cast her first dissent, favouring a quarter-point rate rise.
• Beth Hammack: the Cleveland Fed president, a consistently hawkish voice, also voted for a hike.

Warsh: no need to “throw people out of work”

Fed Chairman Kevin Warsh said he was confident inflation could be brought down to the 2pc target without slowing growth or raising unemployment. “The goal, in my view … isn’t to throw sand in the gears of the economy and throw people out of work. I don’t think we have to do that,” he said.

He argued that productivity gains, even before the AI boom, may let the US grow faster without as much inflation, and said politics played no role in the decision.

But the Fed’s policy statement hinted at more hikes. “The Committee will deliver price stability,” it said, adding that more data before December would help it decide.

Washington’s view

US Treasury Secretary Scott Bessent told CNBC on Thursday that the administration still has faith Warsh will “find the right balance” between the 2pc inflation goal and economic growth. Warsh said he expects third-quarter GDP data on Thursday to show strong investment and consumer spending.

Market reaction was muted. US stocks pared gains slightly after the decision but ended higher, while longer-dated Treasury yields rose.

What markets expect

Markets price about an 80pc chance of a hike at the Fed’s December 8-9 meeting, with another increase likely by March. US inflation is about one percentage point above the Fed’s target, and the Fed has missed its goal for more than half a decade.

“Diesel and gasoline prices remain elevated, AI-driven inflation isn’t easing, and the labour market remains resilient,” said Michael Pearce, chief US economist at Oxford Economics.

Background: war, oil and the midterms

The Fed raised rates by a quarter point last month. Energy costs remain high, including for diesel, a key cost for shipping and farming. Inflation and the cost of living are central to the November 3 midterm elections, which will decide control of Congress. Trump has repeatedly attacked the Fed for not cutting rates.

Why it matters for Pakistan

Higher US interest rates tend to strengthen the dollar and make borrowing more expensive for emerging economies. For Pakistan, which depends on foreign loans and imports most of its fuel, a hawkish Fed adds to pressure already felt from high oil prices. At home, analysts expected inflation near 10pc in October, ahead of the State Bank’s own rate decision.

What to watch: US third-quarter growth data on Thursday, the midterm results, and the Fed’s December meeting.

This article draws on reporting by Geo News.