Fed Holds Rates at 3.75% to 4.00% in Split 10-2 Vote
Key Facts
The Federal Reserve held its target interest rate range at 3.75% to 4.00% at its October 28 meeting, in a decision approved by a 10-2 vote that showed policymakers divided over the next move. Lisa Cook and Beth Hammack voted to raise rates by a quarter percentage point, while the rest of the committee supported holding the range steady. The decision followed real gross domestic product growth of 3.4% at an annual rate in the third quarter, exceeding economists’ expectations, while core inflation was 3.1% year over year in September. That leaves policymakers weighing stronger-than-expected growth alongside inflation that remains elevated. EL7 closing data showed silver fell between the October 28 and 29 closes, as investors tracked the path of monetary policy.
The committee’s statement said economic activity “has been expanding at a solid pace” and inflation “remains elevated.” The Fed said more information would help the committee determine the appropriate stance of monetary policy, linking that assessment to how economic conditions evolve. The decision left the rate range unchanged at 3.75% to 4.00%, but revealed the minority view that favored a quarter-point increase. The vote was therefore split between holding the existing range and further tightening, with the statement announcing no date or predetermined decision for the next move. The committee’s statement did not attribute moves in silver or bond yields to the decision.
Real gross domestic product growth accelerated to 3.4% at an annual rate in the third quarter, compared with 2.2% in the second quarter, according to the U.S. Bureau of Economic Analysis. The reading was above economists’ forecast of 3.0% in a FactSet survey, according to the Associated Press. The BEA attributed the increase to growth in investment, consumer spending and government spending, partly offset by a decline in exports. Imports also rose during the quarter, the bureau said. These components break down the sources of economic growth as the Fed assesses whether activity remains strong alongside persistently elevated inflation.
Business investment excluding housing rose 12.7% in the third quarter, while investment in information-processing equipment increased 37.4%, according to the Associated Press. By contrast, housing investment fell 3.3%, highlighting divergent trends across investment spending during the period. The figures support the picture of strong growth reported by the BEA, but do not erase the impact of falling exports, which offset part of the increase in output. Overall growth of 3.4% was faster than the previous quarter’s pace and exceeded economists’ estimate. The bureau is scheduled to publish its second estimate of third-quarter growth on November 25.
Meanwhile, the core personal consumption expenditures price index rose 0.3% month over month and 3.1% year over year in September, according to data reported by FOX Business. The core index excludes volatile food and energy prices, while the headline PCE index rose 0.5% month over month and 3.6% year over year in the same month. Both headline index readings matched the expectations of economists surveyed by LSEG, according to FOX Business. The figures show prices continuing to rise alongside accelerating growth, a backdrop to the Fed’s debate over the appropriate degree of tightening. The central bank’s statement continued to describe inflation as elevated, without specifying a future path for rates.
On the outlook for policy, the Associated Press reported that investors saw a roughly 85% chance of a rate increase at the December meeting after the October 28 decision, while most economists continued to expect a quarter-point increase at the meeting scheduled for December 8 and 9. Warsh said the committee wanted to monitor how conditions evolve before taking its next step, adding that the prevailing view among Fed officials was that “the monetary medicine is beginning to have some effect.” He also said credit conditions were starting to affect the economy. These estimates and comments remain separate from the committee’s official decision to hold the range in October. The Fed’s statement did not say the split vote guaranteed a December increase.
Attention now turns to the Employment Cost Index for the quarter ended in September, scheduled for release on October 30 at 8:30 a.m. Eastern time, according to the U.S. Bureau of Labor Statistics. The release will provide a fresh reading on employment costs among the economic data investors are tracking after the Fed meeting. The third-quarter release had not yet been published as of the story date. The market is also awaiting the second estimate of third-quarter GDP on November 25, according to the BEA’s schedule. Both dates follow the October decision, as investors await the Fed’s next meeting, scheduled for December 8 and 9.