Fed Holds Rates at 3.75% to 4% as Two Dissenters Favor a Hike
Key Facts
The Federal Reserve held its target rate range at 3.75% to 4% at the conclusion of its meeting on October 28, in a 10-to-2 vote. The decision followed a quarter-percentage-point rate hike at the previous meeting in September, when the move was approved unanimously. But the October meeting revealed a split within the committee, with two members favoring another increase in the range instead of holding it steady. The committee said economic activity was expanding at a strong pace, while inflation remained elevated. At the same time, it noted that uncertainty remained high, partly because of geopolitical developments.
Lisa D. Cook and Beth M. Hammack dissented from the decision to hold rates, favoring a quarter-percentage-point increase in the target range. Their votes meant the disagreement was not limited to the timing of the next move; it also concerned whether monetary policy should be tightened at this meeting. The Fed’s statement cited continued resilience in domestic spending, strong productivity growth and robust capital investment, alongside persistently elevated inflation. The committee said that accumulating more information would help it determine the appropriate policy stance to return inflation to its 2% goal in a timely manner. Before the meeting, 94 of 100 economists surveyed by Reuters expected rates to remain unchanged in October, while all participants expected a hike in December.
Data released ahead of the decision presented a picture combining improvement in some measures of demand and sentiment with continued price pressures. New orders for durable goods rose 1.8% in September to $345.4 billion, after August’s increase was revised to 0.1% and $339.1 billion. The consumer confidence index climbed 7.5 points to 91.7 in October, compared with 84.2 in September, as measures of present conditions and expectations improved. The Conference Board attributed the improvement mainly to better perceptions of current and expected business conditions, and linked the rebound to a decline in retail gasoline prices from September to October. Although annual inflation expectations fell during the month, their average remained at 5.8%, keeping prices in focus alongside the improvement in confidence.
Trade data showed the U.S. goods trade deficit widened to $134.9 billion in September, up 2.1% from August’s $132.1 billion deficit. The figure was released on October 28, but relates to September trade, not trade activity during the session in which the decision was announced. In trading after the Fed announcement, the Dow Jones rose 0.17% and the S&P 500 gained 0.08%, while the Nasdaq Composite fell 0.1%. Treasury yields rose after the decision: the two-year yield climbed 3.9 basis points to 4.776%, and the 10-year yield rose 5 basis points to 5.047%. Charlie Wise of TransUnion said the decision reflects "an ongoing balance between inflation concerns and an economy and labor market that have remained relatively resilient."
Attention now turns to data scheduled for the morning of October 29. The Bureau of Economic Analysis calendar lists the advance estimate of third-quarter GDP and the September personal income and outlays report for release at 8:30 a.m. Eastern time. The Personal Consumption Expenditures Price Index is included in the income and outlays report and is scheduled for release at the same time. These releases will provide fresh indicators of activity, spending and prices following the decision to hold rates. Real GDP grew at an annual rate of 2.2% in the second quarter, after rising 2.5% in the first quarter. On the Federal Reserve calendar, minutes of the October meeting are due on November 18, while the committee’s next meeting is scheduled for December 8 and 9.