The Federal Reserve voted Wednesday to leave benchmark interest rates unchanged, opting to take a patient approach in its fight against inflation despite growing evidence that price pressures are proving more irritating than policymakers expected. In a widely expected 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 elevated,” the post-meeting statement said. “The accumulation of more information will assist the Committee in determining the appropriate policy stance to ensure a timely return of inflation to the Committee’s 2 percent target. The Committee will achieve price stability.” Two voters dissented Two of the 12 FOMC voters dissented from the decision: Gov. Lisa Cook and Cleveland Fed President Beth Hammack, who wanted the committee to raise rates by a quarter percentage point. Cook has been at the center of an ongoing controversy in which President Donald Trump has sought to remove her from office over allegations. about the information you provided regarding mortgage loan applications. While the Supreme Court halted the president’s efforts, the administration has restarted the measure, with a hearing scheduled for early November. This was Cook’s first dissent since joining the Federal Reserve in 2022 as an appointee of President Joe Biden. Dallas Chairwoman Lorie Logan and Minneapolis Chairwoman Neel Kashkari joined Hammack in voting against it the last time the committee met, in July, and both expressed the need for higher rates. However, on Wednesday they reached the majority. The midterm elections have been delayed over the decision. Critical votes will take place across the country on November 3, with control of Congress at stake. Federal Reserve officials consider political independence a cornerstone of the central bank, but some observers have speculated that officials will not want to raise rates so close to the election. Trump, who nominated Warsh for the job, has been at odds with the Federal Reserve for years. Trump has claimed that the funds rate should be much lower. The dissenters reflected an underlying conflict on the committee over how aggressively rates need to be raised to combat rising prices. Inflation has been above the Federal Reserve’s 2% target for more than five years, and the pace of price increases has only accelerated since the September meeting. However, statements in recent weeks 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 said current economic conditions give policymakers time to evaluate their next step. The statement characterized economic activity as “expanding at a strong pace,” an apparent improvement from “solid” in September. There were no other substantive changes to the statement other than the removal of a sentence explaining the September increase. The decision was not a surprise as markets had been pricing in a less than 10% chance of an increase, according to CME Group’s FedWatch tool. Following the decision, the S&P 500 maintained its gains. However, it raises new questions about how long authorities are willing to wait before tightening policies 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, Federal Reserve Chairman Kevin Warsh revealed in a press conference changes to next year’s FOMC meetings that could reduce the number of rate-setting meetings each year. “We believe eight meetings per year is the right number for the FOMC, but in 2027, one meeting will focus exclusively on broad monetary policy strategy, with neither a vote on the federal funds rate nor a policy statement anticipated,” Warsh said. “The rest will be periodic FOMC policy meetings, and I expect that in 2028 we will have two meetings dedicated to strategy discussions and six meetings dedicated to policy setting.” Complicated economic landscape The Federal Reserve faces a complicated economic and political landscape. Inflation, as measured by the Federal Reserve’s preferred gauge, is expected to be above 3% in September, even excluding volatile food and energy prices. Economists worry that inflation has spread beyond the energy sector and the impact of the Iran war. At the same time, the unemployment rate has remained low and economic growth has been 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. Consumer spending has also been strong, and investment tied to the rise of artificial intelligence has helped keep America’s economic engine running. However, the combination has increased debate over how much restraint the Federal Reserve’s current interest rate is actually exerting on the economy, and whether policymakers will have to act more aggressively if price data does not improve. While markets expect additional increases, Warsh has 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 another 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, chief investment strategist at Bryn Mawr Trust and a former BLS analyst. “…The economy is slowing, but slowing and breaking down are two different things. Keeping rates steady gives policymakers more time to assess how the economy is responding to the September surge and the recent rise in long-term borrowing costs.”
