Fed holds rates at 3.75% to 4% as focus turns to ECB decision

Key Facts

The Federal Reserve held its target interest rate range at 3.75% to 4% in a decision issued Wednesday, October 28, 2026, as markets awaited the European Central Bank’s decision the following day. The Associated Press reported that the U.S. two-year Treasury yield moved in both directions after the decision, rising above 4.79% from Tuesday’s close of 4.70%, before falling to 4.69% after comments by Fed Chair Kevin Warsh. The 10-year Treasury yield rose to 5.02% from 4.99% at the previous close, the agency reported. The mixed moves reflect volatile bond trading after the Fed meeting and do not support describing the session as a broad decline in U.S. yields. The hold came with the Fed signaling that inflation remains elevated, while waiting provides time to gather more information before taking further steps.

The Fed’s statement showed that economic activity is expanding at a solid pace and domestic household spending has remained resilient. The central bank also said job gains had kept pace with growth in the labor force and that the unemployment rate had changed little. But the decision was not unanimous among members of the Federal Open Market Committee; the statement was approved by a 10-to-2 vote. The two dissenting members preferred to raise the target interest rate range by a quarter of a percentage point at this meeting. The split highlights differences among committee members in their assessment of monetary policy, as the central bank describes inflation as still elevated.

The focus on the ECB’s decision comes against a backdrop of higher inflation expectations and growing concern about borrowing costs in some countries in the region. The central bank raised its key interest rates by 25 basis points on September 10, 2026, saying the energy shock linked to the conflict in the Middle East was generating inflationary pressures. It projected average headline inflation of 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028. Before the October meeting, Reuters reported that the French 10-year yield was approaching 4.95%, compared with about 4.53% for its Italian counterpart. The spread between French and German yields was about 158 basis points, amid concerns over French debt. These spreads put sovereign borrowing costs at the center of markets’ focus on the bank’s decision, alongside the inflation outlook.

Reuters expected the ECB to leave its deposit rate at 2.5% at its October 29 meeting, while keeping the possibility of another increase in the following months, perhaps in December, on the table because of inflation risks. The bank’s schedule set the release of monetary policy decisions for 14:15 Central European Time, with the news conference to begin after the Governing Council meeting in Frankfurt at 14:45. The schedule places the decision and news conference at separate times during the day, allowing the bank’s presentation of its position to be followed after the decision is announced. Euro zone third-quarter gross domestic product data and national October inflation readings are due to follow the meeting on Friday, October 30. The first estimate of euro zone inflation for October is also due on November 4. These dates provide near-term milestones for assessing the path of prices and economic activity after the bank’s decision.