Key Takeaways
- • The Federal Open Market Committee voted to hold the overnight funds rate at 3.75%-4%, where it has been since a quarter-point increase in September, a decision widely expected by markets pricing less than a 10% chance of a hike per CME FedWatch.
- • Two of 12 voters dissented: Governor Lisa Cook and Cleveland Fed President Beth Hammack, both of whom wanted a quarter-point increase; Cook's dissent was her first since joining the Fed in 2022.
- • Futures markets indicate a strong possibility of another hike at the December FOMC meeting, with perhaps one or two more increases in 2027.
- • Inflation on the Fed's preferred gauge is expected to exceed 3% for September excluding food and energy, while the Atlanta Fed's GDPNow tracker points to 3.4% annualized third-quarter growth.
- • Chair Kevin Warsh announced that the FOMC will hold eight meetings in 2027, with one devoted exclusively to monetary policy strategy, and two strategy meetings and six policy meetings in 2028.
Summary
The Federal Reserve voted Wednesday to keep benchmark interest rates unchanged, with the overnight funds rate remaining in a 3.75%-4% range, according to CNBC. The decision reflected a patient approach to inflation that policymakers acknowledge is proving more persistent than hoped. The post-meeting statement said inflation "remains elevated" and that the Committee would gather more information to determine the appropriate policy stance for a timely return to its 2% goal. Inflation has been above target for more than five years, and its pace has picked up since the September meeting. The statement upgraded the characterization of economic activity to "expanding at a strong pace" from "solid" in September.
Two voters dissented. Governor Lisa Cook and Cleveland Fed President Beth Hammack both favored a quarter-point increase. Cook's dissent marked her first since joining the Fed in 2022 as an appointee of President Joe Biden. Dallas Fed President Lorie Logan and Minneapolis Fed President Neel Kashkari, who had dissented in favor of higher rates at the July meeting, joined the majority this time. Cook also remains at the center of a dispute in which President Donald Trump has sought to remove her over allegations concerning home loan application information; the Supreme Court halted earlier attempts, and the administration has restarted the process, with a hearing scheduled for early November.
Chair Kevin Warsh, whom Trump nominated, avoided forward guidance on future intentions. Fed Vice Chair Philip Jefferson and New York Fed President John Williams had recently indicated that current conditions allow time to assess the next move. Markets had priced in a less than 10% chance of a hike, and the S&P 500 held its gains after the decision. Futures pricing, however, points to a strong possibility of another increase at the December meeting. Warsh also announced changes to the 2027 and 2028 meeting schedules that could reduce the number of rate-setting meetings.
The Fed faces a complicated backdrop. Economists are concerned that inflation has broadened beyond the energy sector and the effects of the Iran war, while unemployment remains low, consumer spending is solid, and AI-related investment supports growth. The Atlanta Fed's GDPNow tracker projects 3.4% annualized growth in the third quarter. The midterm elections on Nov. 3 have also drawn attention, as some observers speculate officials may be reluctant to raise rates so close to the vote, though Fed officials emphasize political independence. Andrew Davis of Bryn Mawr Trust described the approach as wait-and-see, noting that "slowing and breaking are two different things."
Two voters dissented. Governor Lisa Cook and Cleveland Fed President Beth Hammack both favored a quarter-point increase. Cook's dissent marked her first since joining the Fed in 2022 as an appointee of President Joe Biden. Dallas Fed President Lorie Logan and Minneapolis Fed President Neel Kashkari, who had dissented in favor of higher rates at the July meeting, joined the majority this time. Cook also remains at the center of a dispute in which President Donald Trump has sought to remove her over allegations concerning home loan application information; the Supreme Court halted earlier attempts, and the administration has restarted the process, with a hearing scheduled for early November.
Chair Kevin Warsh, whom Trump nominated, avoided forward guidance on future intentions. Fed Vice Chair Philip Jefferson and New York Fed President John Williams had recently indicated that current conditions allow time to assess the next move. Markets had priced in a less than 10% chance of a hike, and the S&P 500 held its gains after the decision. Futures pricing, however, points to a strong possibility of another increase at the December meeting. Warsh also announced changes to the 2027 and 2028 meeting schedules that could reduce the number of rate-setting meetings.
The Fed faces a complicated backdrop. Economists are concerned that inflation has broadened beyond the energy sector and the effects of the Iran war, while unemployment remains low, consumer spending is solid, and AI-related investment supports growth. The Atlanta Fed's GDPNow tracker projects 3.4% annualized growth in the third quarter. The midterm elections on Nov. 3 have also drawn attention, as some observers speculate officials may be reluctant to raise rates so close to the vote, though Fed officials emphasize political independence. Andrew Davis of Bryn Mawr Trust described the approach as wait-and-see, noting that "slowing and breaking are two different things."
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