Fed chief Kevin Warsh stays out of the election campaign and leaves the key interest rate where it is.

Fed Chief Kevin Warsh stays out of the election campaign and keeps the key interest rate where it is Inflation in the US is far too high. Nevertheless, the top brass of the American central bank finds that the current interest rate level is appropriate for now. For once, the American central bank is not in a hurry. Despite persistently high inflation in the US, it is keeping the key interest rate between 3.75 and 4 percent. The Fed's Open Market Committee explained its wait on Wednesday by saying that collecting more data will help determine the correct monetary policy. However, not all of the twelve voting members of the committee held this view: Lisa Cook and Beth Hammack voted for another interest rate hike of 0.25 percentage points. At the last meeting in September, the Open Market Committee had voted unanimously, 12-0, for an interest rate hike. That unity is already gone. While Hammack, President of the Federal Reserve Bank of Cleveland, voted for a more restrictive monetary policy back in the summer, Lisa Cook's dissent is causing a stir. The Governor has always followed the majority opinion and the Fed Chief on monetary policy decisions since joining the body in 2022. Cook has been in the spotlight mainly because the Trump administration relentlessly tries to fire or push her out of office, which courts have so far prevented. The biggest news this Wednesday was the announcement by Fed Chief Kevin Warsh that the central bank will only consider adjusting the key interest rate seven more times in 2027 and six times in 2028. Although the Open Market Committee still wants to meet eight times a year, it will only discuss long-term strategy at individual meetings. Warsh said details about the new plan will be presented next year. There is no legal requirement for the Fed to make eight interest rate decisions per year; however, the current meeting rhythm has been in place for over 40 years. A gentle nudge The initial reaction to the Fed's inaction was cautious in the stock and bond markets. Yields on ten-year US government bonds rose slightly after the decision was published, while the S&P 500 stock index barely reacted. There are two reasons for the Fed's restraint. Firstly, the two most important figures in the central bank alongside Warsh—Vice President Philip Jefferson and John Williams, President of the New York Fed—have indicated that from their perspective, no further change is warranted yet. Jefferson suggested as early as October that the Open Market Committee needs more time to detect relevant trends in the data. Previous Fed Chiefs always coordinated such programmatic statements with their top deputies to steer financial market expectations in the right direction. Kevin Warsh himself is refraining from giving hints about what monetary policy to expect from the Fed. But he has not prevented Jefferson and Williams from making appearances either. Secondly, midterm elections are taking place in the US next week. This alone is not a reason for a null decision by the Fed: an increase in the key interest rate always takes effect with a delay and would have had little immediate impact on Americans' economic situation in the coming days. Furthermore, the American central bank fundamentally disregards the political consequences of its decisions and focuses on its mandate to control inflation and the job market. Warsh emphasized this at the current press conference as well. At the previous meeting in September, the Fed increased the key interest rate, even though President Donald Trump had warned it against before this step. Trump accused members of the Open Market Committee, with the exception of Kevin Warsh, of trying to harm him for political motives. He unsuccessfully demanded that the key interest rate should actually be at 1 percent or even lower. However, right before an important election, the Fed is still trying to keep a low profile if the economic situation allows it. Financial markets took Warsh's deputies' statements seriously: On Wednesday morning, 91 percent of market participants expected that the Fed would remain inactive at this meeting. A month ago, before Jefferson and Williams’ speeches, nearly 70 percent had already bet on another interest rate hike in October. Inflation hurts Americans Currently, 86 percent of market participants assume that this step will be taken at the next meeting in December. This is because nothing substantial has changed in the latest data: inflation in the US is and remains too high. In September, it stood at 3.7 percent, driven by new tensions in the Middle East and repeatedly rising energy costs. The Fed actually aims for an inflation rate of 2 percent. Kevin Warsh had stated in a programmatic speech in August that he and his colleagues must be "confident" that the inflation trend is moving in the right direction. "If it's not, we have work ahead of us." However, the geopolitical situation offers no reason for optimism that inflation will soon fall to two percent. The war against Iran has been going on for over eight months in total. In addition, there are credible media reports that after the midterm elections, the US and Israel might plan a new offensive to force Tehran to the negotiating table. Furthermore, the American job market continues to show surprisingly strong resilience. Restaurants, hospitals, and construction companies continue to hire staff, while job availability remains limited due to sharply declining net immigration. The Fed's Open Market Committee has certainly noticed this resilience. In its communiqué on Wednesday, it stated that the economy is currently growing at a "robust" pace. In September, it still spoke of a "solid" growth rate. Economically, the US continues to outperform all other major industrialized nations in terms of economic growth. For example, the real GDP tracker from the Atlanta Fed has shown growth of well over 3 percent for months. This is driven by strong American consumer spending and rising corporate investments—especially in the construction of data centers. Some economists would have preferred a faster reaction given this situation: why postpone the sure increase until December when action can be taken now? However, many voices countered that inflation has been between 3 and 4 percent for some time now, so no emergency drill is necessary.