Fed Holds Rates as Borrowers Face Higher Costs

The Federal Reserve held interest rates steady on Wednesday, Oct. 28, keeping its target range at 3.75% to 4% as elevated inflation continued to squeeze people already paying more for fuel, groceries and clothing. The Fed's decision leaves the machinery of borrowing costs in the hands of a central institution, while its benchmark rate influences bank loans, credit cards and auto loans across the economy.

Matt Schulz, a chief consumer finance analyst at LendingTree, warned that holiday debt could become more expensive even though the Fed held rates this month. "Even though the Fed is leaving rates alone this month, it might raise rates again at their last meeting of the year in December," Schulz said before the decision. "That is far from guaranteed, but it is something that Americans should be aware of. It means that the debt they run up during the holidays could get a little more expensive to pay off before the year ends, through no fault of their own."

The price squeeze below the policy table

The Consumer Price Index rose 3.7% in September from a year earlier, up from 3.4% in August and 2.4% in February, before the Iran war. Core inflation, which excludes food and energy, reached 2.6% over the year through September. The CPI rose 0.3% in both August and September.

Fuel costs are spreading the pressure. Rising prices for gas, diesel and crude oil have pushed up costs since the Iran war began, and economists said higher fuel expenses were filtering through the wider economy, including shipping. The Fed's interest-rate lever can slow or stimulate economic activity, but it can't directly lower gas prices. Higher energy prices and the rapid buildout of artificial intelligence infrastructure were also described as forces that higher rates wouldn't easily tame.

The effects of the Fed's decisions reach households through borrowing. The average 30-year mortgage rate hit a three-year high of 7.4% earlier in October before slipping. Oxford Economics said higher mortgage rates had made homebuying unaffordable for 5 million more Americans since the beginning of the year.

Election pressure, institutional control

The decision came less than a week before voters went to the polls, with affordability and the cost of living prominent concerns. A recent NBC News poll put President Donald Trump's approval rating at 27% for his handling of the cost of living and 29% for his handling of the war with Iran. Two-thirds of Americans in the poll called gas price increases triggered by the Iran war a "very serious" or "somewhat serious" problem, while more than half said economic conditions had changed what groceries they bought.

President Trump has urged the Fed to lower borrowing costs and criticized its September rate increase. But the vote wasn't unanimous, and the election timing didn't remove the Fed's power to set policy: the central bank left rates unchanged as consumers faced elevated prices and possible higher debt costs. The Fed said: "Inflation remains elevated. 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 percent goal."

Aditya Bhave, head of U.S. economics at Bank of America, said economists and the Fed had become too complacent about inflation above target. He said oil and gas prices were likely to keep inflation elevated for several more months, and diesel costs could lift shipping prices across many goods. "Unless the Fed takes this problem more seriously and stops essentially making excuses about inflation, I think we're not going to get back to 2% until the next recession," Bhave said.

The next move remains theirs to make

Investors and Wall Street analysts widely expected the October hold, while many economists expected another increase at the Fed's final meeting of the year in December. The Fed's September increase lifted its key rate from about 3.6% to 3.9%, according to an Associated Press report. Many economists said solid growth suggested rates weren't especially high and that the economy could withstand higher rates.

The U.S. economy was growing at a healthy pace, unemployment was 4.2%, and hiring was sluggish. A FactSet forecast put third-quarter growth at 3%, up from 2.2% in the April-June quarter. Fed Chairman Kevin Warsh, who has emphasized restoring price stability and returning inflation to the Fed's 2% target, was scheduled to discuss the decision at a 2:30 p.m. EDT news conference. He has opposed signaling future policy decisions and was expected to face questions about the next rate move and whether political pressure affected the decision. For borrowers, the immediate arithmetic is plain: the Fed held today, but another increase remains on the table.