US Fed holds interest rates at 3.75%-4% in 10-2 vote; two officials seek hike as inflation stays elevated

The decision was approved by a 10-2 vote, with Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack favouring a 25-basis-point increase. The decision comes as the central bank assesses whether further monetary tightening is necessary to contain inflationary pressures arising from elevated energy costs, tariffs, resilient consumer spending and an artificial intelligence-driven investment boom.

The Fed also upgraded its assessment of the US economy, describing economic activity as expanding at a "strong" pace, compared with the "solid" expansion noted at its September meeting. However, policymakers acknowledged that inflation remained elevated and indicated that further economic data would help determine the appropriate course of monetary policy. "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.

The Committee will deliver price stability," the Fed said in its policy statement. The latest policy decision exposed differences among Federal Reserve officials over how aggressively the central bank should respond to persistent inflation. Governor Lisa Cook and Cleveland Fed President Beth Hammack voted against maintaining the current interest rate range, instead favouring a quarter-percentage-point increase.

Hammack, who has consistently advocated tighter monetary policy, had also dissented in favour of a rate increase in July. The split comes after the Federal Reserve unanimously raised interest rates by 25 basis points in September, seeking to bring inflation closer to its 2 percent target. At that meeting, the central bank's updated economic projections showed that 16 of 18 policymakers anticipated at least one additional quarter-percentage-point rate increase before the end of 2026.

Only two officials expected rates to remain unchanged for the rest of the year. Fed Chairman Kevin Warsh did not submit an individual interest rate projection. Inflation remains a major concern for Federal Reserve policymakers, with US consumer prices rising 0.6 percent in September, compared with a 0.4 percent increase in August. On a year-on-year basis, the Consumer Price Index (CPI) accelerated to 3.7 percent from 3.4 percent.

Higher energy costs, tariffs, resilient consumer spending and an artificial intelligence-driven investment boom have contributed to inflationary pressures, raising concerns that price increases could remain persistent. Fed Chairman Kevin Warsh has previously highlighted how the AI investment surge is spreading into other sectors, strengthening economic growth while creating additional demand that could fuel inflation.

Speaking earlier this month, Warsh said the investment boom was providing resilience to the US economy despite global uncertainty. "It means we've got plenty of tailwinds that are giving some strength and durability to this economy," he said. The Fed's latest assessment suggests that the US economy remains resilient despite elevated borrowing costs. However, with inflation still above its 2 percent target, policymakers face the challenge of containing price pressures without unnecessarily weakening economic growth.