Fed keep interest rates unchanged in October, but further tightening cannot be ruled out

The Federal Reserve kept interest rates unchanged 3.75%-4.00% range, as widely expected, with policymakers opting to stay on hold ahead of key political event – next week’s US midterm elections, as well as looking for more information from incoming economic data.

The Fed policymakers were not in hurry to take new action following 25 basis points increase last month, despite inflation data in the meantime was stronger than expected.

Fed Chairman Kevin Warsh, speaking at a press conference after the end of the policy meeting, pointed to strong economic growth, but still not generating demand-side inflation that leaves space for the central bank’s action to curb elevated inflation and push it towards 2% target, without slowing growth or raising unemployment.

Although the FOMC said that future action will be primarily driven by economic data, they signaled that more rate hikes may be needed, as prices remain underpinned by healthy consumer spending.

Financial markets saw the latest Fed’s action as hawkishly aligned hold and expect more rate hikes in the coming months, with about 80% chance of a rate hike in December and another increase in borrowing costs likely by March.