Fed Holds Rates at 3.75% to 4% in Divided 10-2 Vote
Key Facts
The Federal Reserve kept its federal funds rate target range at 3.75% to 4% in its Oct. 28 decision, according to the official statement. The statement was approved by a 10-2 vote, revealing divisions within the committee over the appropriate response to inflation. Lisa Cook and Beth Hammack voted against the decision, preferring to raise the target range by a quarter percentage point at the October meeting. The committee said economic activity was expanding at a strong pace, with domestic spending remaining resilient, productivity strong and capital investment solid. At the same time, it said inflation remained elevated and that gathering more information would help it determine the appropriate policy stance to return inflation to its 2% target in a timely manner.
The statement set the committee's assessment of the economy alongside persistent price pressures, saying job gains had kept pace with labor force growth and the unemployment rate had changed little. The Fed did not describe inflation as "very high," saying instead that it "remains elevated," and set the committee's target at 2%. Price data from the Bureau of Labor Statistics show the consumer price index rose 0.6% in September, after a 0.4% increase in August, while its annual increase was 3.7% in the 12 months through September. Gasoline prices accounted for more than half of the monthly increase, after the index rose 9.1% in September. These figures put persistent inflation at the center of the debate surrounding the decision to hold rates, while the committee tied its next policy stance to the accumulation of additional information.
Available activity indicators depict an economy that retained some resilience in the period before the decision. The U.S. consumer confidence index rebounded to 91.7 points in October, compared with 84.2 points in September, according to the Conference Board. Orders for durable goods filed in September rose 1.8% from August to $345.4 billion, according to the U.S. Census Bureau. The Federal Reserve Bank of Atlanta's record showed an estimate of third-quarter GDP growth at 3.3% in an update dated Oct. 28. Comparing the decision with the previous meeting, an Associated Press report said the central bank raised its main interest rate in September for the first time in three years.
In markets, the yield on two-year U.S. Treasury notes fell to 4.69% after remarks by Fed Chair Kevin Warsh, who said the bank wanted to monitor how conditions evolved before taking its next step, according to the Associated Press. Major U.S. indexes closed modestly higher on Oct. 28; the S&P 500 and Nasdaq each rose 0.3%, while the Dow Jones added 97 points. In the bond market, the 10-year yield rose to 5.02% from 4.99% late on Oct. 27, amid volatility following the Fed's decision. Brent crude rose 2% to $111.64 a barrel, while the agency's report linked the oil advance to higher bond yields. Moves in yields, stocks and commodities show varied market reactions after the decision, alongside Warsh's remarks about waiting to see how conditions evolve.
Warsh announced a change to the committee's meeting schedule, while it continues to meet 8 times a year. Beginning in 2027, one meeting will be devoted to discussing monetary policy strategy, with no vote on interest rates or policy statement, according to the Associated Press. Warsh said he expected two meetings to be devoted to that purpose in 2028. The change comes as markets watch for committee signals on the path of interest rates, with the October decision holding the range amid divisions over the possibility of raising it. The next Federal Open Market Committee meeting is scheduled for Dec. 8 and 9, 2026, followed by a press conference, according to the Federal Reserve's calendar.
Attention after the decision turns to labor market and price data due in the following weeks. The U.S. Bureau of Labor Statistics scheduled the release of the Employment Cost Index for the third quarter of 2026 for Oct. 30 at 8:30 a.m. Eastern time. The index measures changes in employers' hourly labor costs, including wages and benefits, according to the bureau. The consumer price index for October is scheduled for release on Nov. 10 at 8:30 a.m. Eastern time. These releases will come before the committee's December meeting, which includes a press conference after its two scheduled days.