Fed Holds Rates at 3.75% to 4% in 10-2 Vote Amid High Inflation
Key Facts
On October 28, the Federal Open Market Committee kept the federal funds target range at 3.75% to 4%, by a 10-2 vote, leaving borrowing costs unchanged as inflation remained elevated. Lisa Cook and Beth Hammack voted to raise the range by a quarter percentage point at that meeting. The statement said the accumulation of more information would help the committee determine the appropriate stance to return inflation to its 2% target in a timely manner. Chair Kevin Warsh offered no clear guidance on the next move, but said the Fed wants to monitor how conditions evolve before acting. That leaves the December path open to the impact of incoming data and the committee's assessment of risks to inflation and activity.
The hold followed the Fed's September quarter-point rate increase to the current range, a unanimous decision with 12 votes in favor and none against. The October disagreement marked a clearer split within the committee, as two members favored immediate tightening while the majority held the range steady. In September, no member opposed the increase. The difference in voting between the two meetings indicates that the October decision did not reflect a single consensus view of price risks or the timing of a move. However, the statement did not attribute an explicit preference to wait to the other members, saying only that more information would help determine the appropriate stance.
The statement described economic activity as expanding at a solid pace, citing resilient domestic spending, strong productivity growth and robust capital investment. It added that job gains had kept pace with labor-force growth and that the unemployment rate had changed little. At the same time, the Fed maintained its description of inflation as elevated, reflecting the continuing tension between resilient economic activity and the bank's need to bring price growth back to its target. Warsh said he did not see the economy as “overheating” or demand as generating inflation that needed to be curbed. He said productivity could allow faster growth with lower inflation, while noting that the effects of higher interest rates were beginning to show in slightly tighter credit conditions that could slow business investment.
Price data available before the meeting showed the consumer price index rose 3.7% in the 12 months through September, compared with an increase of 3.4% in the period through August. The core index, which excludes food and energy, rose 2.6% year over year in September. These readings put headline inflation above the Fed's 2% target, while the core rate also remained above it. Warsh said he expected the third-quarter gross domestic product report to show strong investment and consumer spending, with growth accelerating compared with the first half of the year. The advance GDP report and September personal consumption expenditures data, which include the Fed's preferred inflation measure, were scheduled for October 29.
Market pricing reflected higher expectations for a December rate increase after the October decision. Reuters reported that markets priced in an 86.0% probability of a 25-basis-point hike on October 28, up from 78.3% the previous day, while the Associated Press put the probability at about 85%, based on the CME FedWatch tool. Both agencies said most economists still expected a quarter-point hike at the next meeting, scheduled for December 8 and 9. U.S. stocks closed slightly higher on decision day; the S&P 500 and Nasdaq each rose 0.3%, while the Dow Jones gained 0.2%. The moves show that bets on tighter policy remained in place despite the rate hold, while stock indexes posted modest gains.
The next milestones include the release of third-quarter employment cost index data on October 30 at 8:30 a.m. Eastern time, a date that was scheduled at the time of writing on October 29. Minutes from the October meeting will be released on November 18, offering details of the committee's deliberations after the decision. The Fed's next meeting will take place on December 8 and 9. Warsh said the bank would wait to see how conditions evolve before its next move, while incoming data on prices, activity and employment will be among the information available ahead of that meeting. Readings following the October decision will therefore test whether inflationary pressures persist and how they align with the strong-growth outlook cited by the chair.