Fed Holds Rates Steady, With Two Votes for a Hike

The Federal Reserve held its benchmark interest rate steady on October 28, keeping the target range for the federal funds rate at 3.75% to 4.00%. It was the first hold since the quarter-point increase in September. The Fed announced the decision in a statement released at 2:00 p.m. Eastern.

The vote was 10 to 2. Governor Lisa D. Cook and Cleveland Fed President Beth M. Hammack dissented, preferring to raise the target range by a quarter percentage point at this meeting. September’s increase had been unanimous; this time, two votes favored another hike.

The statement upgraded its assessment of economic activity, saying it is expanding at a strong pace, up from the solid pace described in September. Job gains have kept pace with the workforce, and the unemployment rate has changed little, the statement said. Domestic spending has been resilient, productivity growth is strong, and capital investment is robust.

Inflation remains elevated, the statement said. But the language on the policy outlook changed. In September, the Fed said today’s policy action would support a timelier return to its 2% inflation goal. This time it said the accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to 2%. The shift reads as a decision to gather more information before moving again, rather than to act now.

What happens in December will now turn on Chair Kevin Warsh’s press conference at 2:30 p.m. Markets are pricing in a high chance of a December increase, but nothing is confirmed. Microsoft and Alphabet report earnings after the close. This article will be updated as the press conference and earnings results come in.

At his 2:30 p.m. press conference, Chair Kevin Warsh put the hold down to gathering information. According to FXStreet, Warsh said there is overwhelming agreement among policymakers that the Fed’s tightening is starting to work, and that the progress encourages him. He said the Fed held to take stock because the period ahead should bring more clarity. According to Investor’s Business Daily, Warsh said the Fed is applying new monetary medicine, and that inflation compensation is going the right way and inflation expectations have gone the right way too.

Warsh did not commit the Fed to a December move. Repeating the statement’s language, he said more information will help determine the appropriate policy stance. CoinDesk reported that reading of his remarks as leaving a December hike less than a done deal, with weak data in between meetings potentially keeping the Fed on hold. That is a market interpretation, not Fed guidance. Market pricing itself still leans heavily toward a December increase. According to Investor’s Business Daily and CoinDesk, CME FedWatch put the chance of a quarter-point December hike at 86 percent, up from 78 percent a day earlier. FXStreet reported that traders still had a December hike near 90 percent priced after the statement.

On financial conditions, Warsh said he was unwilling and unable to call them tight, Investor’s Business Daily reported. He also announced a change to the meeting schedule. According to FXStreet and PANews, citing Bloomberg, the Fed will keep eight meetings a year in 2027 but turn one of them into a strategy discussion with no rate vote, leaving six rate-setting meetings in 2028.

The market reaction was calm. According to Reuters, the S&P 500 and the Nasdaq composite each rose 0.2 percent after Warsh began speaking, while the two-year Treasury yield most sensitive to Fed policy fell 1 basis point to 4.726 percent. The ten-year yield stood at 5.007 percent and the dollar index was off 0.02 percent. Those figures capture the early reaction during the press conference.

Microsoft and Alphabet report earnings after the close, and that section will be added in the evening update.