Fed Holds at 3.75%-4% in a 10-2 Vote as Cook and Hammack Dissent in Favor of a Hike
Policymakers said more information will help set the policy stance and described activity as expanding at a strong pace. Traders still see a hike in December and three quarter-point increases within a year.
The Federal Reserve left its benchmark interest rate at 3.75% to 4% on Wednesday, one meeting after raising it by a quarter point in September. The vote was 10-2, with Lisa D. Cook and Beth M. Hammack dissenting in favor of another quarter-point increase. The decision came at the last meeting before the Nov. 3 midterm elections. Interest-rate swaps, as provided to MarketCatalyst, show traders pricing about a 90% chance of a hike in December, little changed from before the announcement, with three quarter-point increases penciled in over the next 12 months.
What the Fed decided
In its statement, the Federal Open Market Committee kept the target range for the federal funds rate at 3-3/4 to 4 percent. Cook and Hammack preferred raising it by a quarter percentage point. The statement said more information will help the Committee determine the appropriate policy stance, with the aim of returning inflation to its 2 percent goal in a timely way, and repeated that "The Committee will deliver price stability." It also said the Committee is continuing its policy of maintaining ample reserves in the banking system.
The Committee's read on the economy was upbeat. It said economic activity is expanding at a strong pace, up from a "solid pace" in its September statement, that domestic spending has been resilient despite elevated uncertainty, that productivity growth and capital investment are strong, and that job gains have kept pace with the workforce while the unemployment rate has changed little. Inflation, it said, remains elevated.
Why the Fed held
Recent inflation data came in hotter than expected. September consumer prices rose 3.7% from a year earlier against 3.6% expected, and core prices rose 0.3% on the month against 0.2% expected. Wholesale prices were also stronger than forecast, with core producer prices up 0.7% on the month against 0.3% expected. After the CPI report, market odds of an October hike briefly rose to about 44%, from roughly 20%. The Fed instead held and said it will keep assessing additional data. Economists cited the proximity of the Nov. 3 midterm elections as a deterrent to bold policy moves, and the September minutes said most participants judged another increase would likely be appropriate by year-end.
The focus now shifts to what Chair Kevin Warsh says at his post-meeting news conference. As provided to MarketCatalyst, Warsh has deliberately avoided signaling future policy moves, but hot inflation could draw out more insight from him on the path forward.
How the last three decisions compare
| Meeting | Decision | Target range | Vote | Dissent |
|---|---|---|---|---|
| July 29 | Hold | 3.50%-3.75% | 9-3 | Hammack, Kashkari and Logan preferred a hike |
| Sept. 16 | Hike of 0.25 point | 3.75%-4% | 12-0 | None |
| Oct. 28 | Hold | 3.75%-4% | 10-2 | Cook and Hammack preferred a hike |
The September move was the Fed's first rate increase in more than three years. September's projections showed 12 of the 18 participants expecting the rate to end 2026 at 4.125%, the midpoint of a range one hike above today's, and four expecting 4.375%. Two saw no change. By our calculation, that means 16 of 18 expected at least one more increase this year and none expected a cut. The median projection was 4.1% for the end of 2026 and for 2027.
What markets are pricing
The market is leaning further toward tightening than the Fed's own projections. By our calculation, three more quarter-point increases would lift the range to 4.50%-4.75%, about half a point above the 4.1% median projected for the end of 2027. The December meeting is scheduled for Dec. 8-9. Before the decision, the 10-year Treasury yield was steady at 4.99% and the dollar index was above 102, as of Tuesday's close.
The inflation backdrop
September core consumer prices rose 2.6% from a year earlier. The Fed's preferred measure, the PCE price index, is due Thursday, the day after the meeting, and September's projections put 2026 PCE inflation at 3.7% and core PCE at 3.4%.
What it means
The Fed paused after a hike while two voters said it should have kept going, and its statement upgraded growth to "strong." That combination leaves the committee leaning toward tightening, with the bar for December set by incoming inflation and jobs data. Stocks that are sensitive to financing costs, including housing and real estate, and bond yields will key off those releases and Warsh's tone.
Sources: Federal Reserve, FOMC statement (Oct. 28), September 16 statement, July 29 statement and September projections. The swaps pricing is as provided to MarketCatalyst. This is informational, not a recommendation to buy or sell.
Readers also read
MarketCatalyst is not a registered investment advisor and does not manage client assets. Content on this platform is provided for informational and educational purposes only. It is not investment advice, and MarketCatalyst is not a stock-picking or trade-alert service. Trading stocks and options involves risk, including the possible loss of principal. Consider your own goals, time horizon, and risk tolerance, and consult a qualified financial advisor before making any investment decision.