Fed Holds at 3.75%-4% in Its Last Decision Before the Midterms, Leaving a December Hike on the Table

The US Federal Reserve kept its benchmark interest rate in a range of 3.75% to 4% on Wednesday, choosing to wait rather than tighten again less than a week before Americans vote in the midterm elections. Early coverage described the vote as split, a sign that some policymakers wanted to move sooner.

The decision was widely expected. Ahead of the meeting, CME Group's FedWatch tool showed traders putting roughly 90% odds on a hold, while assigning about a 76% chance to a rate increase at the December meeting. Wednesday's pause does not take that December move off the table.

Why the Fed paused

The Fed is now in tightening mode. In September it raised rates by a quarter point to the current range, its first increase since 2023, as inflation stayed stubbornly above target. Even before that, the committee was divided: at its July meeting, three regional Fed presidents dissented in favour of a hike while the majority held.

Holding now gives policymakers another set of inflation and jobs data before they decide on the next step, and keeps the central bank out of the headlines in the final days of a political campaign. Chair Kevin Warsh was scheduled to explain the decision at a press conference half an hour after the statement.

The tension for the Fed is that waiting carries its own risk. If price pressures, already lifted by high energy costs, keep building, a single quarter-point move in December may not be enough. Markets will read Warsh's remarks closely for any hint of how many more increases the committee has in mind.

What it means for India

For Indian investors, a Fed that is still in tightening mode matters on three fronts.

The first is the interest-rate gap. Higher US yields make dollar assets more attractive and tend to pull money out of emerging markets. Foreign portfolio investors had already withdrawn about Rs 48,056 crore from Indian equities in October up to last week, as we reported earlier. A hold eases that pressure for a few weeks, but the prospect of a December hike keeps it alive.

The second is the rupee. A firm dollar and Brent crude trading above $115 a barrel are a costly combination for India, which imports most of its oil. Both weigh on the currency and feed into domestic inflation.

The third is the Reserve Bank of India's own path. The RBI has also been raising rates, and SBI Chairman CS Setty said this week that he expects another 50 basis point hike in December. A Fed that keeps tightening makes it harder for the RBI to stop early without putting pressure on the rupee.

What to watch next

The Fed's next policy meeting is in December, after the midterm results and two more months of data. Until then, US inflation prints and Warsh's guidance will set the tone for global bond yields, and with them, the flow of foreign money into and out of Indian markets.

This is an original summary based on public reporting. See our editorial policy for how we source, write, and correct our stories.