Fed Holds Rates by 10–2 Vote, With Two Members Preferring a Quarter-Point Hike
Key Facts
The Federal Reserve kept its federal funds target range at 3.75%–4% at its October 28 meeting, with the committee voting 10–2 in favor. Lisa Cook and Beth Hammack dissented, preferring to raise the range by a quarter percentage point. The committee said economic activity was expanding at a "solid pace," while inflation remained elevated. The split vote puts before markets a disagreement within the committee over whether holding rates steady is sufficient under those conditions. The decision coincided with data showing that gross domestic product growth accelerated in the third quarter.
Real gross domestic product grew at an annual rate of 3.4% in the third quarter of 2026, compared with an increase of 2.2% in the second quarter, according to the U.S. Bureau of Economic Analysis. A FactSet survey cited by the Associated Press estimated third-quarter growth at 3% before the actual reading was released. The bureau attributed the increase to growth in investment, consumer spending and government spending. These contributions came despite a decline in exports, while imports increased. This expansion provides context for the Fed's decision, as it cited strong economic activity when holding rates steady.
Investment featured among the drivers of growth: business investment, excluding housing, rose 12.7% in the third quarter, according to the preliminary GDP report cited by the Associated Press. Investment in information-processing equipment increased 37.4% over the same period. These figures are consistent with the Fed's reference to resilient domestic spending and strong growth in productivity and capital investment. In its assessment of the economy, the central bank upgraded its description from "solid" at its September meeting to "strong" in October, according to Reuters. The report also said job gains were keeping pace with labor-force growth and that investment remained solid.
On prices, the headline personal consumption expenditures index rose 3.6% in September from the same month a year earlier, while the index excluding food and energy increased 3.1%, according to the Bureau of Economic Analysis. On a monthly basis, the headline index rose 0.5% and the core index 0.3%. The two annual readings show that the increase in the headline index exceeded that in the core index. The Fed said inflation remained elevated as it left interest rates unchanged. Uncertainty was also elevated, which the committee attributed in part to geopolitical developments.
Markets reacted unevenly after the announcement: the Nasdaq fell 0.1% and the S&P 500 rose 0.1%, according to Reuters. In the bond market, the two-year Treasury yield rose 3.9 basis points to 4.776%. The 10-year yield increased 5 basis points to 5.047%. Yield movements reflected an increase after the decision, alongside mixed equities. A Goldman Sachs Asset Management official tied his expectation that rate hikes would resume in December to upside inflation risks, saying: "We expect the Fed to resume raising rates in December; September's strong CPI reading is a reminder that inflation risks remain tilted to the upside."
Attention is turning to October personal income and spending data, which the Bureau of Economic Analysis is scheduled to release on November 25 at 8:30 a.m. Eastern time. The Federal Open Market Committee is scheduled to hold its next meeting on December 8 and 9. The October data release comes before the meeting, putting price and spending figures among the scheduled milestones ahead of the committee's next gathering. The latest September readings remain 3.6% for the headline index and 3.1% for the index excluding food and energy. The expectation that rate hikes will resume in December is the view of an asset management firm cited in a Reuters report, not a decision issued by the committee.