Fed Holds Rates at 3.75% to 4.00% in 10-2 Vote

Key Facts

On October 28, the Federal Reserve kept its target rate range at 3.75% to 4.00%, in a decision approved by the Federal Open Market Committee in a 10-2 vote. Lisa Cook and Beth Hammack dissented, preferring to raise the target range by a quarter percentage point. The decision came as inflation remained above the central bank’s 2% target, while the price trajectory diverged from signs of slowing real spending. The Fed said gathering more information would help the committee determine the appropriate policy to return inflation to its target. Based on available coverage, Chair Jerome Powell gave no clear indications about the next move.

The Fed’s statement described economic activity as expanding at a solid pace, saying domestic spending had remained resilient and that productivity was strong and capital investment robust. At the same time, it noted that inflation remained elevated and that uncertainty was still high, partly because of geopolitical developments. On the labor market, the central bank said job gains had kept pace with labor-force growth and the unemployment rate had changed little. Bureau of Labor Statistics data show the economy added 29,000 jobs in September, while the unemployment rate held at 4.2%. This mix leaves policymakers facing an economy that continues to expand, with inflation yet to return to the level the central bank targets.

Bureau of Economic Analysis data showed the personal consumption expenditures price index rose 3.6% year over year in September, compared with a 3.4% increase in August. The core index, which excludes food and energy, rose 3.1% after 3.0% in the previous month. In spending data, nominal consumer spending increased 0.5% in September, but real spending was unchanged month over month, after rising 0.5% in August. This means the increase in spending measured in current dollars was not accompanied by growth in spending after adjusting for prices in September. That came alongside increases in both headline and core inflation readings from their August levels.

These indicators did not give markets a decisive steer on the December decision. The Associated Press reported that most economists still expected a quarter-percentage-point rate hike at the next meeting on December 8 and 9, while financial markets put the probability of a hike at about 85%. That remains an expectation attributed to economists and markets, not a decision announced by the Fed. The central bank said additional information would help the committee determine the appropriate policy stance, signaling the importance of forthcoming data ahead of the meeting. Minutes of the October meeting are scheduled for release on November 18, ahead of the December meeting.

Technology stocks were under pressure ahead of the rate decision, as investors worried that heavy spending on artificial intelligence might not generate profits and productivity gains to justify its cost. In Friday’s session on October 30, the S&P 500 fell 1.8%, its worst day since June, while the Nasdaq Composite dropped 2.9%. Amazon’s results illustrated the scale of spending behind these questions: the company reported negative free cash flow of $42.4 billion over 12 months and spent $94.8 billion on property and equipment, mostly for AI investments. Stock indexes had also fallen on October 22, when the Nasdaq dropped 2.6% and the S&P 500 fell 1.21% amid questions about financing the expansion of AI and its returns. Before the Fed meeting, markets focused on whether cloud computing platforms would prove that AI spending was turning into revenue.

In a revision to its meeting schedule, the Fed will continue to hold eight policy meetings a year, in line with its current schedule. One meeting in 2027 will be devoted to long-term strategy, with no interest-rate vote, according to the Associated Press. The Bureau of Economic Analysis is scheduled to release October personal income and spending data on November 25, while the Bureau of Labor Statistics will publish the October consumer price index on November 10. These data precede the next Federal Open Market Committee meeting on December 8 and 9, giving markets new dates to track inflation and spending ahead of the next decision.