Fed Holds Rates at 3.75% to 4% in 10-2 Vote

Key Facts

On October 28, the Federal Open Market Committee kept the target range for the federal funds rate at 3.75% to 4%, in a 10-2 vote, according to the Federal Reserve statement. Lisa D. Cook and Beth M. Hammack preferred a quarter-percentage-point increase at the meeting, dissenting from the decision to hold. The central bank said "economic activity has been expanding at a solid pace," but added that "inflation remains elevated." It tied the policy outlook to the accumulation of further information, seeking a timely return of inflation to its 2% goal. The decision followed a rate increase in September, while the October statement left the next move open.

The Fed had raised the range by a quarter of a percentage point on September 16 to its current level, and the decision was unanimous, with 12 votes in favor and zero against. The September statement described economic activity as expanding at a solid pace, wording less forceful than October's description of a "strong pace." In September, the committee said the increase supported a faster return to the 2% inflation goal, while the October statement tied a timely return to an assessment of accumulated information. The difference in wording between the two meetings puts the economic and inflation assessments at the center of the policy decision. September participants' projections showed a median federal funds rate of 4.1% at the end of 2026, compared with 3.8% in the June projections.

September projections also put the median interest rate at 4.1% at the end of 2027, versus 3.6% in the June projections. In its assessment of the economy, the Fed said domestic spending had remained resilient, productivity growth was strong and capital investment was solid. It added that job gains had kept pace with labor force growth and that the unemployment rate had changed little. Nonfarm payrolls increased by 29,000 in September, while the unemployment rate held at 4.2%, according to the Bureau of Labor Statistics. Meanwhile, real gross domestic product growth slowed to an annualized 1.5% in the second quarter, from 2.1% in the first quarter, with the Bureau of Economic Analysis attributing this partly to weaker government spending.

The Consumer Price Index for All Urban Consumers rose 0.6% in September after increasing 0.4% in August, while its annual increase was 3.7%, compared with 3.4% in the previous 12-month reading, according to the Bureau of Labor Statistics. Gasoline was the largest contributor to the monthly increase; its index rose 9.1% and accounted for more than half of the overall gain. The energy index also increased 5.2% during the month. Excluding food and energy, the index rose 0.3% monthly and 2.6% annually. The readings reflect higher headline inflation alongside slower monthly core inflation, while the Fed said its policy assessment would depend on incoming information.

Ahead of the decision, analysts cited in Reuters coverage said waiting would allow policymakers to assess whether inflation would cool enough to avoid further increases in borrowing costs. After the decision, U.S. stocks pared their gains slightly, Reuters reported, with the Dow Jones up 0.15% and the S&P 500 up 0.10%, while the Nasdaq was down 0.11% at the time of the report. EL7 data showed the S&P 500 closing at 7,733.77 points on October 28, compared with 7,722.60 points the previous day. Reuters said investors expected further increases starting in December and extending into 2027. Those expectations come as the Fed statement set no date or path for the next move.

The advance estimate of third-quarter gross domestic product and the September personal income and outlays report were scheduled for release on October 29 at 8:30 a.m., according to the Bureau of Economic Analysis calendar. The Bureau of Labor Statistics is scheduled to release its October jobs report on November 6 at 8:30 a.m. Eastern time, followed by the October Consumer Price Index on November 10 at the same time. Minutes of the Fed's October 27-28 meeting will be released on November 18. The next Federal Open Market Committee meeting is scheduled for December 8 and 9 and will include a news conference. These releases put GDP, inflation and jobs data between the October decision and the next meeting.