US Fed holds rates at 3.75% to 4% as Lisa Cook and Beth Hammack vote for a hike

The US Federal Reserve left interest rates unchanged on Wednesday, keeping its target range at 3.75% to 4%, but the vote showed a central bank still leaning towards tighter money. Two of the 12 voting members wanted a rise.

Governor Lisa Cook and Beth Hammack, president of the Cleveland Fed, dissented in favour of a quarter-point increase. The decision was taken 10-2 at the end of a two-day meeting, the last before the US midterm elections next week.

The Fed’s statement said “inflation remains elevated” and that more information would help it decide its next step. It upgraded its description of the economy, saying activity was expanding at a “strong” pace instead of “solid”, and called domestic spending resilient. It gave no signal on what it will do in December.

Under its chair, Kevin Warsh, the Fed raised rates in September for the first time in three years, a unanimous decision. “The plain fact is that inflation is too high, and has been for too long,” Warsh said then. US consumer prices rose 3.7% in the year to September, up from 3.4% in August, as the war with Iran kept fuel prices high.

Why it matters for India

A Fed that stays on hold gives some breathing room to emerging markets, where higher US rates tend to draw money away. Indian shares rallied on Thursday, the day after the decision, and by Friday foreign investors turned net buyers of Indian shares for the week. The rupee held near 95 to the dollar.

The Reserve Bank of India raised its own repo rate by 25 basis points to 5.50% on 7 October. A further Fed rise in December would add pressure on the rupee at a time when oil prices are already high.