Fed Holds Rates at 3.75% to 4% Amid Accelerating Economic Growth

Key Facts

The Federal Reserve kept its target range for the federal funds rate at 3.75% to 4% on October 28, with the Federal Open Market Committee approving the decision by a 10-2 vote. Lisa Cook and Beth Hammack dissented, preferring a quarter-percentage-point increase at that meeting. The hold followed a quarter-point rate increase on September 16 to the same level, when the central bank described economic activity as expanding at a moderate pace. In its new statement, it said that “economic activity has been expanding at a solid pace,” while maintaining its assessment that inflation remains elevated. The decision puts recent growth and inflation data at the center of debate over the path of monetary policy, while the bank did not specify in its statement when it would take its next step.

The Bureau of Economic Analysis’ preliminary estimate showed real gross domestic product grew at an annual rate of 3.4% in the third quarter of 2026, which ran from July to September, after growing 2.2% in the second quarter. The bureau attributed the increase to gains in investment, consumer spending and government spending, partly offset by a decline in exports. The comparison between the two quarters points to faster overall growth, while private domestic demand also picked up pace. Real final sales to private domestic purchasers rose at an annual rate of 4.9% in the third quarter, compared with 4.6% in the second quarter. These figures provide a more detailed picture of the components of growth that policymakers monitor alongside aggregate output.

In the quarterly price details, the personal consumption expenditures price index excluding food and energy rose at an annual rate of 2.5% in the third quarter, after a 3.3% increase in the second quarter. But September data showed the core index rose 0.3% month over month and 3.1% from the same month a year earlier. The headline personal consumption expenditures price index also rose 0.5% month over month and 3.6% year over year that month. The divergence between the quarterly price reading and the latest monthly reading shapes the inflation picture markets are tracking after the rate hold. The core index’s annual rate remains above the less-excluding headline index reading, while the Fed’s statement said inflation “remains elevated.”

Stocks and bonds moved in different directions during the decision session. The S&P 500 closed up 0.3%, and the Nasdaq rose 0.3% on October 28. The two-year Treasury yield climbed above 4.79% from 4.70%, then fell to 4.69% after Fed Chair Kevin Warsh’s remarks. By contrast, the 10-year yield rose to 5.02% from 4.99% at the previous Tuesday’s close. Warsh said the central bank wants to “watch how conditions evolve before taking its next step,” noting that higher loan rates have made lenders and investors more selective.

Real estate investment trusts, meanwhile, saw VNQ rise 2.3% to $93.87 at the October 29 close, while most individual funds listed by CRE Blurb also advanced; gains among the examples ranged from 0.6% for HPP to 4.3% for VICI. Those gains followed a 5.7% decline in the FTSE Nareit All Equity REITs index in September, when the 10-year Treasury yield closed at 5.27%, its highest level in nearly a quarter-century, according to Nareit. Nareit said the yield rose 85 basis points in the third quarter, alongside a decline in REIT debt issuance in each month of the quarter and an increase in weighted coupons. Issuance totaled $7.4 billion at a weighted coupon of 5.0% in July, then $5.6 billion at a 5.8% coupon in August, and $2.9 billion at a 6.1% coupon in September. These figures reflect rising financing costs during the quarter, even as some funds posted gains at the end of October.

Nareit’s data do not mechanically link REIT performance to the direction of bond yields: the sector posted positive total returns in 78% of the months when Treasury yields rose, from the first quarter of 1992 through the second quarter of 2025. On October 30, the 10-year Treasury yield fell to 4.93% from 4.98% in the previous session, but the Associated Press said investors bought bonds in search of safer assets amid a decline in technology stocks. AI stocks had steadied during the week after volatility sparked by concerns that high borrowing costs could undermine the debt-financed data-center boom. This comes amid a mix of digital infrastructure financing needs and borrowing pressures on companies and REITs. The second estimate of third-quarter GDP and October personal income and spending data are scheduled for release on November 25, while the Fed’s next meeting is set for December 8 and 9.