Inflation Jumps to 3.7% as Fed Pauses Rate Hikes

Inflation in the United States accelerated to an annual rate of 3.7% in September, up from 3.4% in August. The Federal Reserve chose to keep interest rates unchanged on Wednesday, marking its final monetary policy decision before the midterm elections. The rise in prices was driven primarily by higher costs for gasoline, diesel, and crude oil. Economists note that these fuel price increases are now affecting other sectors of the economy.

The central bank issued a statement acknowledging that inflation remains elevated. It indicated that the committee needs more data to decide on the appropriate policy stance for returning inflation to its 2 percent target. The Fed’s preferred inflation measure, the personal consumption expenditures price index, is scheduled for release Thursday. Economists at Morgan Stanley expect that figure to match the 3.7% rate, suggesting the Fed may not be finished tightening.

The decision to hold rates was not unanimous. Governor Lisa Cook and Cleveland Fed President Beth Hammack voted in favor of a rate increase. This marks the first dissent of Cook’s career, a development occurring while President Donald Trump attempts to remove her from her position. In September, the committee voted 12-0 to raise rates, the first such increase since 2023.

Fed Chairman Kevin Warsh announced that the central bank will reduce the number of rate-voting meetings from eight to seven next year and by two in 2028. He stated that this schedule change will improve the quality of the bank’s decisions. During a news conference, Warsh described economic activity as expanding at a strong pace and domestic spending as resilient. He added that the committee’s job is to ensure that price changes in specific sectors do not spread across the entire economy.

Warsh stated that politics played no role in the decision, despite voters identifying rising prices as a primary concern. A recent NBC News poll found that two-thirds of Americans view soaring gas prices as a serious problem. The same poll reported that President Trump’s approval rating stands at 27% on the cost of living and 29% on the Iran war. More than half of respondents said economic conditions had altered their grocery purchasing habits.

When asked about President Trump’s claims that Fed members were hostile to him, Warsh defended his colleagues. He described the internal debate as a serious and sober discussion, stating the committee reached the right decision for the current moment. The committee noted that uncertainty remains elevated due to geopolitical developments. Wednesday’s announcement sets the stage for a potential rate increase at the December meeting.