Fed holds US interest rates ahead of midterm elections

The US Federal Reserve has kept interest rates on hold days before midterm elections even as the surge in fuel prices sparked by the Iran war reverberates across the world’s biggest economy.

Most of the rate-setters on the rate-setting Federal Open Market Committee of the US’s central bank on Wednesday said they needed “more information” before deciding what to do “to ensure a timely return of inflation” to their 2 per cent goal, after holding the federal funds rate within a range of 3.75 per cent to 4 per cent.

The decision to hold came after a 10-to-two vote, with two members favouring a quarter point rise in rates.

The committee acknowledged economic activity was “expanding at a strong pace”, signalling mounting concern the economy is in danger of overheating from the AI boom.

The decision, which was widely expected by Wall Street, comes despite fresh evidence that inflation is accelerating and spreading across the economy.

While the Fed says it does not take politics into account in its decisions, some economists said rate-setters would be reluctant to raise rates with the critical election that will determine control of Congress looming next Tuesday.

Rising prices this year have largely been driven by war in the Middle East with Iran. Oil prices have soared with the closure of the strait of Hormuz and inflation in the US rose last month to its highest level since the spring, while oil traded briefly above $117 a barrel earlier this week, its highest price in more than six months.

The higher cost of living is expected to play a crucial role in the upcoming midterm elections that will determine which party will control Congress.

Before Wednesday’s announcement, senior Fed officials hinted they were willing to wait and see what happened to price pressures before raising interest rates again.

The central bank increased rates for the first time in more than three years in September in an attempt to contain inflation. The decision defied Donald Trump’s attempts to press the central bank into drastically lowering rates.

Wall Street stocks slightly pared gains after the decision which shifts the probability of a rate hike to the Fed’s next monetary policy meeting in December.

“The Fed didn’t throw any curveballs,” said ​Ryan Detrick, chief market strategist at Carson Group in Omaha. “Likely ⁠the pressure will be to do one more hike in December, as inflation is ‌still ‌potentially ​an issue.”

Financial markets ⁠are pricing in an 86 per cent likelihood ⁠of a 25-basis-point rate ​hike at the Fed’s next meeting in December, up from 78.3 per cent on Tuesday, according to CME’s FedWatch tool. – Copyright The Financial Times Limited 2026 / Reuters / Guardian service