The Federal Reserve chose to keep interest rates unchanged at its policy meeting ahead of the midterm elections, refraining from further rate hikes. Chairman Warsh explicitly stated that this decision was unaffected by electoral politics, and the Fed's sole objective was to bring inflation back to its 2% target. Although inflation remains high, Warsh's reasoning for postponing rate hikes is clear: the current rate of price increases is fluctuating, and existing data is insufficient to clarify long-term trends; more economic reports are needed before making a judgment. He also emphasized that the pause does not signify the end of the rate hike cycle; if inflation continues to rise, further rate hikes remain an option. Opinions within the committee were not unified, with some members supporting an immediate rate hike.

Inflation data are fluctuating, and the trend is unclear.

Since the outbreak of the US-Iran conflict in February, inflation has fluctuated. The Fed's most closely watched PCE figures from February to September are: 2.8%, 3.5%, 3.8%, 4.1%, 3.7%, 3.7%, 3.4%, 3.6%. The more familiar CPI figures from February to September are: 2.4%, 3.3%, 3.8%, 4.2%, 3.5%, 3.4%, 3.4%, 3.7%. The two sets of data show similar trends: a rapid surge after the conflict, a peak in April, followed by a volatile decline, but without stability, before rebounding again in September. Numerically, the back-and-forth fluctuations haven't formed a sustained downward trend. Relying solely on these few months' data makes it easy to be misled by single-month fluctuations, which is the core data logic behind Warsh's decision to remain on the sidelines.

A shift in policy thinking: no longer simply raising interest rates at the first sign of inflation.

This approach differs significantly from the Fed's past practices. Previously, when inflation remained high, the Fed would typically raise interest rates consecutively to quickly cool the economy. However, this round of inflation is mixed with many external disturbances, making interest rate hikes alone ineffective. For example, rising oil prices are mainly due to supply shortages; interest rate hikes won't magically increase the production of refined oil in the US. Secondly, the hardware price increases driven by AI demand could lead to business cash flow problems if interest rates are raised. Furthermore, continued aggressive tightening could even drag down the economy. The Warsh team has chosen a "wait and see" approach, prioritizing more data to filter out short-term noise. This pause in interest rate hikes will not further increase mortgage and credit card costs in the short term. However, the market generally expects a rate hike in December. In short, the Fed has switched to a new pace: no longer immediately raising interest rates consecutively as soon as inflation rises, but patiently collecting data, identifying trends, and acting cautiously.