Fed Holds Rates Between 3.75% and 4% Despite Persistently High Inflation

Key Facts

On October 28, the Federal Reserve kept its target range for the federal funds rate at 3.75% to 4%, saying economic activity was expanding at a solid pace while inflation remained elevated. The decision passed by a 10-2 vote at a meeting held amid continued debate over prices and inflation. Two members voted to raise the range, while the majority supported holding it steady. Fed Chair Kevin Warsh said politics had no bearing on the decision. He added that he had heard no discussion of politics during his meeting with colleagues.

The vote reflected divisions within the Federal Open Market Committee over the appropriate next step, with inflation still above the Fed’s 2% target. According to data from the Bureau of Economic Analysis, the personal consumption expenditures price index, the measure tracked by the Fed, rose 3.6% year over year in September and 0.5% month over month. The core index, which excludes food and energy, increased 3.1% annually and 0.3% monthly. The annual core inflation reading was 3.1%, not 3.1% monthly as stated in the initial draft. These figures place the decision to hold rates steady against a backdrop of continued price pressures, despite differences among committee members over the next step.

The meeting took place against a backdrop of strong economic performance: an Associated Press report said output grew at an annual rate of 3.4% in the quarter from July to September. That was faster than growth of 2.2% in the previous quarter, from April to June. The acceleration supports the Fed’s description of economic activity as expanding at a solid pace, while price data remained a focus for policymakers. In this context, the committee left the target range unchanged, despite two members voting to raise it. Warsh affirmed that political considerations did not enter into the decision, saying: "Politics played no role in the decision."

Separately, amid the pressure faced by Fed Chair Jerome Powell, President Donald Trump renewed his call on September 30 for Powell to resign from the Federal Reserve Board after the release of the inspector general’s report on the bank’s building renovation project. The Associated Press said the inspector general found no reasonable basis to believe a violation of federal criminal law had occurred that would warrant a referral to the attorney general. The report cited an increase in the estimated cost of renovating two buildings from $921 million in February 2020 to $2.018 billion in December 2024. A Reuters report said the inspector found no basis for a criminal referral or evidence of administrative misconduct related to the cost overruns. Powell’s term as Fed chair ended in May, but he remained a member of the Board of Governors, where his term as a governor runs through January 2028.

The Bureau of Economic Analysis is scheduled to release its October personal income and outlays report on November 25, 2026, providing a subsequent reading on inflation and spending. The next Federal Open Market Committee meeting is scheduled for December 8 and 9. The Associated Press said most economists expected another increase at that meeting, and investors saw the probability of a hike at about 85% after the October decision. These expectations remain attributed to the economists and investors cited by the agency, while the latest official decision was to hold the target range steady. Markets will be watching upcoming price data and the December meeting.