US Inflation Hits 3.6% as Fed Holds Interest Rates
The Federal Reserve maintained interest rates despite September inflation rising to 3.6%, driven by energy price spikes linked to the war in Iran.
The U.S. Personal Consumption Expenditures (PCE) price index rose 0.5% in September, pushing the annual inflation rate to 3.6%, the highest level since May. This acceleration from August's 3.4% was driven largely by a 9.2% jump in energy prices, with oil exceeding $100 a barrel due to the war in Iran and shipping restrictions in the Strait of Hormuz. Core PCE, the preferred metric for the central bank, rose 3.1% annually.
In response to these pressures, the Federal Open Market Committee voted 10-2 to maintain interest rates between 3.75% and 4%. Governor Lisa D. Cook and one other official dissented, voting instead for a rate hike. Fed Chair Kevin Warsh stated the committee would seek more clarity before its December meeting, though market traders price in a high probability of a rate increase then.
Despite inflation, the U.S. economy grew at a 3.4% annual rate in the third quarter, supported by AI infrastructure investment and consumer spending. However, real consumer spending grew by less than 0.1% after inflation adjustments, and the personal savings rate dropped to its lowest level since October 2022.
These economic trends arrive just before midterm elections, where voters have given President Donald Trump poor marks for his handling of the cost of living. While Trump claimed oil prices would drop once the war in Iran concludes, National Economic Council Director Kevin Hassett characterized the September inflation spike as a blip. Hassett also defended a White House investigation into Governor Cook, describing the review as a fair process.
