US Fed holds rates at 3.75% to 4% as the rand sits steady at R16.65 to the dollar
Two of the twelve committee members wanted an immediate quarter-point hike, and the Fed will cut the number of rate-setting meetings in the next two years.
The US Federal Reserve held its key interest rate steady on Wednesday, keeping the target range at 3.75% to 4.00%, and the rand held at R16.65 to the dollar on the decision. As IOL reported on 29 October, the Fed’s twelve-member Federal Open Market Committee voted 10-2 to hold, citing the need for more data in the fight against inflation.
The hold follows a quarter-point hike in September, the Fed’s first in three years. Governors Lisa Cook and Cleveland Fed President Beth Hammack dissented, arguing instead for an immediate quarter-point increase.
For South African households the immediate effect is a rand that has not moved on the news. The currency is the channel through which US rate decisions reach local prices, and a steady rand at R16.65 limits the imported inflation pressure that a weaker currency would have added to fuel, food and machinery costs. Economists polled by the outlet expect the South African Reserve Bank’s Monetary Policy Committee to keep the repo rate unchanged at its November meeting, even with local inflation expected to peak near 5% by year-end.
Fed Chair Kevin Warsh told reporters that energy and related prices had moved higher again in recent weeks, and that the committee’s job was to ensure relative price changes in some sectors did not broaden out across the economy. He said the committee needed more information in the coming weeks to determine the policy stance appropriate to a timely return of inflation to the 2% goal. The Fed has missed that target for more than five years.
US consumer inflation came in hotter than expected in September at 3.7%, edging back towards a three-year high set in May. Warsh said politics played no role in the decision, six days before the 3 November midterm elections. US Treasury Secretary Scott Bessent told CNBC he and President Donald Trump had great confidence in Warsh.
The Fed described US economic activity as expanding at a strong pace, an upgrade on its language six weeks earlier. Warsh also announced that the Fed would reduce how often it sets interest rates over the next two years. It will keep eight meetings a year in 2027 and 2028, but will set rates only seven times next year and six times the year after.
Wendy Edelberg, a senior fellow at the Brookings Institution, told AFP before the meeting that holding after a September hike was potentially contradictory given a largely stable labour market. The US unemployment rate has sat around 4.2% over the past year.
The committee meets again in early December. For South African borrowers, the nearer date is the Reserve Bank’s November meeting, where the expectation reported by the outlet is a hold.
