Fed Holds Rates at 3.75% to 4% in Split 10-2 Vote
Key Facts
The U.S. Federal Reserve on October 28 kept its target range for the federal funds rate at 3.75% to 4%, with 10 members voting in favor and two opposed, according to the committee’s statement. Lisa D. Cook and Beth M. Hammack preferred a quarter-percentage-point increase, a dissent that highlights the committee’s continued disagreement over the direction of monetary policy. The statement said that “the accumulation of more information will help the committee determine the appropriate stance of policy to ensure that inflation returns to its 2% objective in a timely manner.” The decision to hold rates was expected, according to Reuters, which reported that the committee preferred to wait for more inflation data before changing borrowing costs. The decision follows September’s rate increase, making October’s pause a point for assessing the data, not a declaration that the debate over tightening is over.
The Fed described economic activity as expanding at a “solid pace,” while saying inflation remained elevated, job gains were keeping pace with growth in the labor force, and the unemployment rate had changed little. The September statement described the pace of expansion as “moderate,” while retaining its characterization of inflation as elevated, meaning October’s wording conveyed a stronger assessment of economic activity while concern about prices persisted. The latest personal consumption expenditures data available before the decision showed the index rising 3.4% year over year in August, the same rate recorded in July, according to the U.S. Bureau of Economic Analysis. In light of these indicators, the Fed said additional information would help it determine the appropriate policy stance, linking its decision to the goal of returning inflation to 2% in a timely manner. The October statement did not change the target range, but kept the inflation goal and elevated price assessment at the heart of the committee’s rationale.
The committee raised the range by a quarter of a percentage point to 3.75%–4% on September 16, in a unanimous 12-0 vote, according to that meeting’s statement. October’s decision therefore held the range set in September, after the vote shifted from unanimity to a 10-2 split. Reuters said the committee deferred any change in borrowing costs until after the U.S. midterm elections the following week, pending additional inflation data. In stock markets, the S&P 500 and Nasdaq Composite each rose 0.3% in the October 28 session, and the Dow Jones added 97 points, according to an Associated Press report. Two-year Treasury yields initially rose above 4.79% from 4.70% late Tuesday, then fell to 4.69% after Fed Chair Kevin Warsh’s remarks, the same report said.
In another move in the bond market, Reuters said U.S. Treasury yields continued to rise after the decision, with the 10-year yield reaching 5.028%. This coincided with the Fed’s assessment that economic activity was expanding at a solid pace, compared with “moderate” in the September statement, according to Reuters. As for data, the personal income and outlays report for September was scheduled for release on October 29 at 8:30 a.m. Eastern time and includes personal consumption expenditures price index data. The release is the latest data point the committee is awaiting, after it said that the accumulation of information would help it determine the appropriate policy stance. The annual index reading available before the decision was 3.4% in August, unchanged from July, according to Bureau of Economic Analysis data.
The next dates published on the Fed’s website set out the official follow-up to October’s decision: minutes from the October 27 and 28 meeting will be released on November 18. The committee is scheduled to hold its next meeting on December 8 and 9, according to the Fed’s calendar. The minutes will detail discussions at the meeting that ended with a 10-2 vote, including Cook and Hammack’s preference for a quarter-point increase. The next meeting follows September’s rate increase and October’s decision to hold rates at 3.75% to 4%. The 2% inflation goal and the official assessment that prices remained elevated remain among the points the committee’s statement cited in explaining its decision.