Fed Holds Rates at 3.75% to 4% Amid Divide Over Inflation
Key Facts
The Federal Reserve kept its target interest-rate range at 3.75% to 4% in its decision issued on October 28, in a vote that revealed a split within the committee over the appropriate step to address inflation. Ten members voted to keep the range unchanged, while two favored raising it by a quarter percentage point, according to the Fed’s statement. The statement said economic activity was expanding at a strong pace and inflation remained elevated. It added that the accumulation of more information would help the committee determine the appropriate policy stance. The decision comes as indicators of growth, inflation and consumer spending diverge, putting them all in the context of the Fed’s debate over the path of interest rates.
The advance estimate of real gross domestic product showed the U.S. economy grew at an annual rate of 3.4% in the third quarter of 2026, after an increase of 2.2% in the second quarter, according to the U.S. Bureau of Economic Analysis. In the third quarter, the personal consumption expenditures price index excluding food and energy rose at an annual rate of 2.5%, compared with an increase of 3.3% in the previous quarter, the bureau said. The comparison points to a slowdown in the annualized quarterly increase in the core index, alongside faster GDP growth. But September data showed a different picture on a year-over-year basis: the core personal consumption expenditures price index rose 3.1%, while the overall index increased 3.6%. On a monthly basis, the core index rose 0.3% in September, while real consumer spending increased by less than 0.1%.
In earlier remarks reported on October 8, Alberto Musalem said bringing inflation back to the 2% target would require further monetary tightening, but did not clarify his position on a rate increase at the October meeting, according to a Reuters report published by Investing.com. He also said in September that the current policy rate, at 3.75% to 4.00%, leaned toward accommodation, and that inflation could remain well above the target for 18 months without further tightening, according to another Reuters report carried by the same site. In remarks published by the Federal Reserve Bank of St. Louis on October 8, Musalem attributed persistently elevated inflation to ongoing demand pressures and adverse supply shocks. He stressed in those remarks the importance of bringing inflation back to 2%. These earlier comments provide context for his stance on inflation, but do not establish that he called on October 30 for rates to be raised soon.
Among upcoming dates, the Bureau of Economic Analysis plans to release its second estimate of third-quarter GDP on November 25 at 8:30 a.m. Eastern time, according to the bureau’s schedule. That estimate will update the advance reading, which recorded growth at an annual rate of 3.4%. The next Federal Open Market Committee meeting is scheduled for December 8 and 9, according to the Federal Reserve’s calendar. The meeting follows October’s decision to leave rates unchanged, despite two members favoring an increase. The committee’s statement had noted that gathering more information would help it determine the appropriate policy stance.