US Federal Reserve leaves interest rates unchanged ahead of key midterm elections

Dubai: The US Federal Reserve left interest rates unchanged on Wednesday, days ahead of crucial midterm elections, despite inflation surging in the world's largest economy.

Most investors expected the Fed to hold interest rates steady at 3.75% to 4.00%, according to CME Group’s FedWatch tool, a month after its first rate increase in three years, when it raised borrowing costs by 25 basis points and signalled another hike this year.

The Fed has missed its long-term two-percent target for inflation for more than five years, with households and businesses battered by sustained price increases.

US President Donald Trump's war on Iran, launched in late February, has sent energy prices skyrocketing and fueled domestic inflation, alongside his wide-ranging tariff policies.

Prices have also been driven by an investment boom in artificial intelligence (AI) technology and the build-out of huge data centers to support it.

Midterm elections loom

The Fed's decision comes six days ahead of the November 3 midterm elections, in which the Democratic Party is seeking to wrest control of both houses of Congress from Trump's Republicans.

Trump's handling of the economy has been a key issue throughout the campaign, with working-class households across the country struggling to make ends meet despite largely stable overall economic growth.

US consumer inflation came in hotter than expected in September, clocking in at 3.7 percent, edging back towards a three-year high established in May.

Still, key policymakers at the Fed - including Warsh - have signaled that they did not see an urgency to raise rates again immediately.