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 4.00%, in a decision approved by a 10-2 vote. The Federal Reserve said in its statement that the committee had decided to "maintain the target range" at its current level. The decision followed the central bank’s quarter-point increase in September, which passed unanimously by a 12-0 vote. The Fed thus halted rate increases at its next meeting, leaving the range set in September unchanged. The October result reflected disagreement within the committee over the direction of rates, not over the size of the adjustment preferred by the dissenters.
Governor Lisa Cook and Cleveland Fed President Beth Hammack voted against holding the range, preferring a quarter-point increase at the meeting. That differed from September’s unanimous vote for the previous increase. Three officials had dissented at the July meeting, when the committee held the range at 3.50% to 3.75%; they, too, had preferred a quarter-point increase. Minutes of the July meeting also showed that many officials believed higher borrowing costs would be necessary if inflation did not move down to the central bank’s 2% target. These positions place October’s vote within a recurring committee debate over how to address persistently elevated inflation.
In its assessment of the economy, the committee said activity was expanding at a strong pace and domestic spending had remained resilient, alongside strong productivity growth and solid capital investment. It added that job gains had kept pace with growth in the labor force and that the unemployment rate had changed little. The committee described uncertainty as remaining elevated, attributing some of it to geopolitical developments. According to a Reuters report, the committee upgraded its description of activity from "solid" at its September meeting to "strong" in October, while investment remained solid and job gains kept pace with labor force growth. The upbeat assessment of economic activity was central to the discussion accompanying the decision to hold rates.
By contrast, the committee retained its description of inflation as elevated and said that accumulating more information would help it determine the appropriate policy stance to return inflation to its 2% goal in a timely manner. The statement tied any decision on the next step to receiving additional information, without changing the inflation target or announcing a timetable for action. In July, minutes showed that many officials believed an increase could become necessary if inflation did not move down to the target. That means October’s decision came as the committee continued to weigh its strong assessment of economic activity against its concerns about inflation. Near-term price and growth data remain relevant to that assessment ahead of the committee’s next scheduled meeting.
On the data front, the estimated international trade deficit in goods was $134.9 billion in September, the Census Bureau said, up 2.1% from August’s $132.1 billion deficit. The estimate was released on October 28, with the full monthly report on international trade in goods and services for September due on November 4. In a separate activity estimate, the Atlanta Fed’s GDPNow model recorded seasonally adjusted annualized real growth of 3.3% for the third quarter in an update dated October 28. The bank describes the model as a nowcast based on available data, not an official forecast by the Atlanta Fed, the Federal Reserve or the committee. The figures offer mixed signals, with the goods deficit widening while the growth estimate remained strong, but neither alone determines the committee’s decision.
After Fed Chair Kevin Warsh’s press conference began, the Nasdaq Composite and S&P 500 each rose 0.2%, Reuters reported. The two-year Treasury yield fell 3.8 basis points to 4.7%, while the 10-year yield rose 5 basis points to 5.042% and the 30-year yield increased 6 basis points to 5.367%. Reuters had reported after the decision that markets edged higher as investors awaited more data on the inflation path. Yields moved in different directions across maturities during the press conference, alongside modest gains in the two indexes. The press conference was scheduled for October 28 at 2:30 p.m. Eastern time.
Attention turns on October 29 to the September personal income and spending report, scheduled for release at 8:30 a.m. Eastern time and including data on the Personal Consumption Expenditures price index. The index measures changes in the prices of goods and services purchased by consumers in the United States, and the committee’s 2% inflation target remains a benchmark for its assessment. At the same time, the Bureau of Economic Analysis will release its advance estimate of third-quarter gross domestic product. The full report on international trade in goods and services for September is due on November 4. After those data releases, the Fed will hold its next meeting on December 8 and 9, a meeting that includes a Summary of Economic Projections.