By Andrew Moran
Contributing Writer
The Federal Reserve left interest rates unchanged at its October policy meeting, despite ongoing inflation concerns.
In a widely expected decision, the Federal Open Market Committee voted 10-2 to keep the benchmark federal funds rate in the current target range of 3.75% to 4% on Wednesday, “in support of the Federal Reserve’s dual mandate.”
Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack were the lone dissenters, preferring to raise interest rates by a quarter point.
“Economic activity is expanding at a strong pace,” the central bank said in a post-meeting statement.
“While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little.”
This marked Cook’s first dissent since joining the central bank as a President Joe Biden appointee in 2022.
The last time the rate-setting committee left rates unchanged this past summer, Dallas Fed President Lorie Logan and Minneapolis Fed President Neel Kashkari dissented with Hammack.
With the midterm elections days away, Fed Chair Kevin Warsh reaffirmed the central bank’s independence, adding that officials did not take politics into account.
“I just spent two days with my colleagues upstairs. I didn’t hear an utterance about politics,” Warsh said. “I didn’t hear a reference to politics, elections, what’s happening in the next week or so.”
Market Reaction
U.S. stocks barely reacted to the news, with the leading benchmark averages little changed.
“This was really no surprise. The general view is that the Fed is raising rates but doing so at a slower pace and alternating meetings,” Larry Holzenthaler, senior portfolio manager at Catalyst Funds, wrote in an emailed note.
Yields on U.S. Treasury bonds were mixed. The benchmark 10-year yield firmed above 5%, while the 30-year ticked up to around 5.33%.
The two-year yield, which tracks Fed policy expectations, rose to about 4.78%.
The U.S. Dollar Index — a gauge of the greenback against a weighted basket of currencies — was flat at around 102.30.
Economists at Dutch bank ING have penciled in a quarter-point boost to the federal funds rate in December, “followed by a prolonged pause through to December 2027.
“Our forecast path for the Fed assumes that in the couple of months following the midterm elections we see an agreement that improves the flow of energy from the Persian Gulf, but significantly, also allows for a sharp reduction in shipping and insurance costs,” they said in an Oct. 23 research note.
Schedule Adjustment
The Fed will be making fewer interest rate decisions next year.
Warsh said that the central bank will adjust its meeting schedule in 2027 and 2028. While the rate-setting committee will still meet eight times a year, one of those in 2027 will center primarily on strategy. In 2028, there will be two strategy sessions.
According to the central bank chief, it is about making the right policy decisions by thinking long-term.
“Getting policy right involves assessing near-term developments at timely, regular, and information-rich intervals,” he said.
“But it’s equally important we reserve time and space as an intellectually diverse group for strategic deliberations, for thinking anew about big questions, looking out over longer time horizons, focusing, as I say, on the left side of the decimal point.”
Global Policy Decisions
After what Warsh characterized as “synchronous tightening” across the major central banks last month, monetary authorities could still maintain a hawkish stance heading into 2027.
Earlier in the day, the Bank of Canada raised its key policy rate by a quarter point to 2.5%, its first increase this year.
While the Bank of Japan is expected to hold rates at 1.25% this week, a CNBC survey of economists and strategists suggested Tokyo could set the stage for a December rate hike.
Futures markets also suggest the Bank of England could follow through on a 25-basis-point move at next week’s meeting.
Economic observers have debated whether this tightening is necessary, since raising interest rates cannot reverse the war-driven oil-price shock. But rate hikes can also help prevent second- and third-order inflation effects from filtering through the economy.
“The Bank [of Canada] appears focused on preventing elevated oil prices from translating into broader price pressures, with the 2022 oil-driven inflation spike still very much in the rear-view mirror,” David-Alexandre Brassard, CPA Canada’s chief economist, wrote in a statement.
Warsh noted that the Fed has observed changes in tighter financial conditions since the September meeting, which could help carve a path toward price stability.
“We have started to see some changes in financial and credit conditions; they have tightened for some businesses and households, much as we would expect,” he told reporters. “Market participants are becoming somewhat more discerning in their capital allocations.”
The Fed’s decision comes one day before a batch of data offers a snapshot of the economy’s health.
September’s Personal Consumption Expenditure (PCE) Price Index, third-quarter GDP, and weekly jobless claims will be published on Thursday.
