Fed Holds Rates Despite High Inflation as Bank of England Faces Pressure Over Next Big Decision

The US Federal Reserve has kept its key interest rate on hold at a 15‑year high of 3.75% to 4%, despite inflation running above target and public calls from President Donald Trump for lower borrowing costs.

The Bank of England now faces its own crucial choice on 5 November, as it comes under pressure over how to respond to price rises at home and shifting expectations in global markets.

The Federal Open Market Committee voted 10-2 to maintain the target range. Two members favoured a quarter-point increase. The decision follows a rise in September that lifted the range to its current level and keeps US borrowing costs at their highest since before the financial crisis.

In its statement, the Fed said inflation remained elevated and that it needed more information before deciding on the appropriate policy stance. It reiterated its 2% inflation goal.

Further increases therefore remain possible, depending on incoming economic data and the outlook for growth and employment.

Officials signalled they were watching indicators such as wage growth, consumer spending and corporate investment for signs that higher rates are feeding through into slower demand. At the same time, they pointed to risks from global developments and financial conditions, which could tighten further even without another rate rise.

Warsh Insists Politics Played No Part

Asked whether political considerations had influenced the decision, Fed Chair Kevin Warsh said politics had played no role in the committee's deliberations, according to Reuters.

Warsh said the Fed remained committed to returning inflation to its 2% target, while warning that higher energy prices could complicate that effort.

Trump has repeatedly called for lower interest rates. The Fed's decision comes days before the US midterm elections on 3 November, with inflation and the cost of living featuring in the political debate.

Analysts said the 10-2 split underlined that there is still a live debate within the Fed over how restrictive policy needs to be to return inflation to target. The two votes for a rise suggested that, if inflation stays firm or accelerates, further tightening is still on the table.

US Inflation Still Driven By Energy Costs

US consumer prices rose 3.7% in the 12 months to September, according to the Bureau of Labor Statistics. The consumer price index rose 0.6% over the month, with energy prices up 5.2% and gasoline prices up 9.1%.

Economists noted that underlying price pressures in areas such as services, rents and wages would be crucial in determining the Fed's next steps. If energy-driven increases begin to feed into expectations and wage bargaining, policymakers could find it harder to bring inflation back to 2% without a more pronounced slowdown in activity.

What The Fed's Move Means For Britain

The Bank of England's Monetary Policy Committee is due to announce its next decision on 5 November. It held Bank Rate at 3.75% in September.

UK inflation stands at 3.1%, above the Bank's 2% target. The Bank has said that disruption to energy supplies linked to the Middle East conflict has pushed up energy prices, and that these are expected to push inflation higher still.

The Fed's decisions do not determine the Bank of England's policy. However, changes in US interest rates can influence global bond yields and currency markets, which the Bank must assess alongside UK inflation, economic growth and labour-market data.

A high-for-longer Fed stance can put upward pressure on UK market rates, affecting government borrowing costs, corporate financing and, in time, mortgage and loan rates faced by households.

The MPC will weigh those external influences against domestic signs of cooling demand and the impact that previous increases in Bank Rate are already having on the housing market and business confidence.

Both central banks are trying to bring inflation back to target while avoiding unnecessary damage to economic activity. The Fed's decision to hold, with two members voting for an increase, shows that US policymakers are still weighing the possibility of further tightening, a debate that is also shaping the choices now confronting the Bank of England.