The US Federal Reserve left its benchmark interest rate unchanged on Wednesday, holding the target range at 3.75% to 4%, but two of its policymakers broke ranks to demand a further increase, signalling that the world's most influential central bank may tighten again before the year ends.

The 10-2 decision was widely expected. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented, both preferring a quarter-point rise. The Fed raised rates by 25 basis points in September, its first increase since July 2023.

Inflation still the worry

In its statement, the Federal Open Market Committee upgraded its view of the economy, saying activity "is expanding at a strong pace" and that job growth is keeping up with the workforce. It described inflation as still elevated and declared: "The Committee will deliver price stability."

The Fed also dropped wording that tied its policy to a return to 2% inflation, saying instead that more information would help it decide its next move.

Fed chair Kevin Warsh said inflation had run above target for nearly six years and had to come down. He rejected suggestions of a looser, implied target, saying the goal remains 2% as measured by the personal consumption expenditures index. Higher oil and fuel prices linked to Middle East hostilities have pushed prices further from that goal this year, with US crude futures trading above $100 a barrel.

'Politics played no role'

With US midterm elections a week away, Warsh told reporters that "politics played no role in the decision" and that the elections were not discussed at the meeting. He declined to respond to criticism from President Donald Trump, who has pushed for lower borrowing costs.

Warsh also announced changes to how the Fed works. From 2027 the committee will hold eight meetings a year, one of which will be set aside for strategy with no rate vote or policy statement. In 2028, two meetings will focus on strategy and six on policy.

Markets price in December move

Investors read the dissents as a strong hint of what comes next. The CME FedWatch tool put the odds of a hike at the December 9 meeting at about 83%, up from 78% a day earlier, while Goldman Sachs said it expects an increase. Bond traders see the rate approaching 4.7% by September 2027.

Wall Street ended the day slightly higher, with the S&P 500 up 0.26%, the Dow Jones up 0.28% and the Nasdaq up 0.17%, according to Fox Business. The 10-year Treasury yield climbed back above 5%.

Why it matters beyond the US

Higher US rates tend to strengthen the dollar and raise borrowing costs for emerging markets. For countries such as Kenya, which import fuel in dollars and service large external debts, a Fed that stays tight for longer can mean pricier imports and costlier refinancing on international markets.

Photos: The White House via Wikimedia Commons (public domain); Federal Reserve via Wikimedia Commons (public domain). Thumbnail design: HAMASTA MEDIA.