The Federal Reserve held its benchmark interest rate in a range of 3.75%-4% on Wednesday, while two policymakers dissented in favor of another increase, CNBC reported. The Fed rate decision today leaves the rate where it has been since a quarter percentage-point hike in September.
The pause offers little sign that borrowing costs will ease soon. Inflation has run above the Fed's 2% target for more than five years and has picked up since the September meeting, according to CNBC. Futures market pricing indicates a strong possibility of another hike in December.
The decision was widely expected. Markets had priced in a less than 10% chance of a hike at this meeting, according to the CME Group's FedWatch tool, CNBC reported. The S&P 500 held on to its gains after the announcement.
What the Fed said in its October rate decision
The Federal Open Market Committee's post-meeting statement kept the focus on prices. "Inflation remains elevated," it said.
"The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee's 2 percent goal. The Committee will deliver price stability."
The statement described economic activity as "expanding at a strong pace," an upgrade from "solid" in September, according to CNBC. The only other substantial change was the removal of a sentence explaining the September increase.
In recent weeks, officials have signaled a desire to wait for more data before tightening further. Fed Vice Chair Philip Jefferson and New York Fed President John Williams both said current conditions give policymakers time to evaluate their next move, CNBC reported.
Lisa Cook dissent is her first since joining the Fed
Two of the committee's 12 voters dissented: Governor Lisa Cook and Cleveland Fed President Beth Hammack. Both wanted a quarter percentage-point increase, according to CNBC.
It was Cook's first dissent since she joined the Fed in 2022 as an appointee of President Joe Biden. She has been at the center of a continuing controversy in which President Donald Trump has tried to remove her over allegations about information she provided on home loan applications.
The Supreme Court stopped that attempt, but the administration has restarted the effort, with a hearing scheduled in early November, CNBC reported.
The split shows a committee divided over how aggressively to fight rising prices. When the Fed last held rates in July, Hammack was joined in dissent by Dallas Fed President Lorie Logan and Minneapolis Fed President Neel Kashkari. Both have said rates need to be higher, but they sided with the majority on Wednesday, according to CNBC.
Why markets see a Fed rate hike in December
The economic data have strengthened the case for higher rates. Inflation on the Fed's preferred gauge is expected to come in above 3% for September, even excluding volatile food and energy prices, CNBC reported.
Economists are concerned that inflation has spread beyond the energy sector and the effects of the Iran war, according to the report.
Growth, meanwhile, has stayed strong. The Atlanta Fed's GDPNow tracker points to 3.4% annualized growth in the third quarter, which would be the strongest in a year. Unemployment has remained low, consumer spending has been solid, and investment tied to the artificial intelligence boom has helped keep the economy running, CNBC reported.
That mix of strong growth and above-target inflation has fueled debate over how much the current rate is actually restraining the economy. Futures pricing suggests a strong possibility of a hike at the December meeting, and perhaps another one or two in 2027, according to CNBC.
For households, that means the cost of borrowing is more likely to rise than fall in the near term if those market expectations prove right.
Midterms and White House pressure hang over Kevin Warsh's Fed
The decision comes days before the Nov. 3 midterm elections, which will decide control of Congress. Fed officials consider political independence a cornerstone of the central bank, but some observers have speculated that officials would not want to raise rates so close to an election, CNBC reported.
Trump, who nominated Kevin Warsh as Fed chair, has been at odds with the central bank for years and has said the funds rate should be much lower.
Key dates ahead:
- Wednesday, 2:30 p.m. ET: Warsh's news conference following the decision
- Nov. 3: Midterm elections
- Early November: Hearing on the administration's renewed attempt to remove Cook
- December: Next FOMC meeting, where futures pricing points to a possible hike
Markets are waiting for Warsh's 2:30 p.m. ET news conference for further hints about whether the committee is preparing to raise rates again in December.