The Federal Reserve voted Wednesday to maintain benchmark interest rates, choosing to take a patient approach in its fight against inflation despite mounting evidence that price pressures are proving more worrisome than policymakers had hoped.
In a widely anticipated decision, the Federal Open Market Committee kept the overnight funds rate in a range between 3.75% and 4%, where it has been since the central bank approved a quarter-percentage-point increase in September.
“Inflation remains high,” the post-meeting statement said. “The accumulation of more information will help the Committee determine the appropriate policy position to ensure a rapid return of inflation to the Committee’s 2 percent target. The Committee will ensure price stability.”
Two dissident voters
Two of the FOMC’s 12 voters disagreed with the decision: Gov. Lisa Cook and Cleveland Fed President Beth Hammack, both of whom wanted the committee to raise rates by a quarter of a percentage point.
Cook has been at the center of an ongoing controversy in which President Donald Trump attempted to remove her from office over allegations regarding information she provided on home loan applications. While the Supreme Court stopped the president’s attempts, the administration has restarted the movement, with a hearing scheduled for early November.
It was Cook’s first dissent since joining the Fed in 2022 as an appointee of President Joe Biden.
Dallas Chair Lorie Logan and Minneapolis Chair Neel Kashkari both joined Hammack in voting no at the committee’s last meeting, in July, and both expressed the need for higher rates. However, they fell into the majority on Wednesday.
The midterm elections dragged on this decision. Decisive votes will take place across the country on November 3, with control of Congress at stake. Fed officials view political independence as a cornerstone of the central bank, but some observers have speculated that officials will not want to raise rates as an election approaches.
Trump, who appointed Warsh to the position, has been at odds with the Fed for years. Trump called for the funds rate to be much lower.
The dissents reflect an underlying conflict within the committee over the need to raise rates aggressively to combat rising prices. Inflation has been above the Fed’s 2% target for more than five years and the pace of price increases has only accelerated since the September meeting.
Statements in recent weeks, however, have reflected a desire to wait for additional data before tightening policy further. Fed Vice Chairman Philip Jefferson and New York Fed President John Williams both said current economic conditions give policymakers time to evaluate their next move.
The statement described economic activity as “developing at a healthy pace,” which appears to be an improvement from September’s “solid.” There were no other substantive changes to the statement other than removing a sentence explaining the September increase.
This decision is not a surprise since the markets anticipated a probability of an increase of less than 10%, according to the CME group’s FedWatch tool. Following this decision, the S&P 500 retained its gains.
However, it raises new questions about how long policymakers are willing to wait before tightening again. Futures market prices indicate a strong possibility of another hike at the next FOMC meeting in December, and perhaps another hike or two in 2027.
Separately, Fed Chairman Kevin Warsh revealed changes to FOMC meetings next year at a news conference that could reduce the number of rate-setting meetings each year.
“We believe eight meetings per year is the appropriate number for the FOMC, but in 2027 one meeting will focus exclusively on overall monetary policy strategy, with no votes on the federal funds rate or any planned policy statements,” Warsh said. “The rest will be regular FOMC policy-setting meetings, and I hope that in 2028 we will have two meetings dedicated to strategy discussions and six for policy-setting.”
A complex economic context
The Fed faces a complex economic and political context. Inflation, as measured by the Fed’s preferred gauge, is expected to be above 3% in September, even excluding volatility in food and energy prices. Economists worry that inflation has spread beyond the energy sector and the impact of the war in Iran.
At the same time, the unemployment rate has remained low and economic growth has been strong. The Atlanta Fed’s GDPNow tracker shows annualized growth of 3.4% in the third quarter, which would be the strongest in a year. Consumer spending has also been strong, and investments linked to the artificial intelligence boom have helped keep the U.S. economic engine running.
The combination, however, has fueled debate over how much restraint the Fed’s current interest rate actually puts on the economy and whether policymakers will need to act more aggressively if price data doesn’t improve.
With markets expecting further hikes, Warsh avoided providing so-called forward guidance on the FOMC’s intentions. In June, his fellow committee members, through the “dot plot”, indicated the likelihood of a further increase this year.
“The Fed is taking a wait-and-see approach, and I think that makes sense given where we are in the cycle,” said Andrew Davis, head of investment strategy at Bryn Mawr Trust and a former BLS analyst. “…The economy is slowing, but slowing and breaking are two different things. Keeping rates steady gives policymakers more time to assess how the economy responds to the September hike and recent rise in long-term borrowing costs.”
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