Will the US Fed raise interest rates in December? What the latest policy decision signals

The decision also comes less than a week before the November 3 US midterm elections, which will determine whether President Donald Trump's Republican Party retains control of Congress. Trump has repeatedly called for interest rates to be slashed to around 1 percent, contrasting with the Fed's tightening stance amid persistent inflationary pressures. The Federal Reserve's latest statement leaves the possibility of further interest rate increases open, although policymakers stopped short of committing to another hike in December.

"Inflation remains elevated," the Federal Open Market Committee said, emphasising the need for additional economic information before determining its next move. "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 also upgraded its assessment of US economic activity to "strong" from "solid" in September, citing resilient domestic spending, robust capital investment and strong productivity growth.

The stronger economic assessment suggests policymakers may have room to raise borrowing costs further if inflation remains persistent. Expectations of further tightening are supported by the Fed's September economic projections, which showed that 16 of 18 policymakers anticipated at least one additional quarter-percentage-point 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 rate projection. Wednesday's decision also exposed differences among policymakers. Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented from the 10-2 decision, favouring an immediate 25-basis-point increase. Their dissent underscores shows that inflation remains sufficiently elevated to warrant further tightening, although the majority preferred to await additional data.

US consumer inflation accelerated to 3.7 percent in September from 3.4 percent in August, remaining well above the Fed's 2 percent target. Higher energy costs, tariffs, resilient consumer spending and an artificial intelligence-driven investment boom have contributed to price pressures. Warsh has previously warned that the AI investment surge is creating a near-term demand shock, adding to inflation even as it strengthens economic growth.

For now, the Fed has kept its options open. Labour market conditions will also influence the Fed's next move. The US economy added just 29,000 jobs in September, although the central bank's latest statement said job gains had kept pace with the workforce and unemployment had changed little.