Fed holds rates at 3.75%–4% as two officials favor an increase

On October 28, the Federal Open Market Committee, the Fed's rate-setting body, voted 10–2 to keep the federal funds target range at 3.75%–4%. This benchmark for overnight borrowing between banks also influences borrowing costs for households and businesses.^[1][2]

Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented in favor of an increase. The hold was widely expected; reports say markets still broadly expect a quarter-percentage-point increase in December, though that is not a policy decision.^[2][3][4]

Fed Chair Kevin Warsh said economic activity is expanding strongly and inflation remains elevated, while also saying the economy is not running too hot. He explained the pause by pointing to an approaching period rich in new information.^[5][6][7]

An unchanged benchmark gives loans tied to it no relief from a rate cut. If inflation stays stubborn, expectations for a December increase could keep the rates lenders demand elevated. Homebuyers and businesses replacing maturing debt therefore continue to face financing pressure.^[8][4]

Long-term borrowing costs also depend on the bond market. On October 28, the two-year Treasury yield fell to 4.67% from 4.70% the previous session, while the ten-year rose to 5.05% from 4.99%. Yields are the returns investors demand to hold bonds; the ten-year is an important reference for mortgages and long-term corporate financing, so an unchanged policy rate does not guarantee cheaper loans.

If longer-term yields stay elevated, financing pressure on property businesses and heavily indebted companies will persist. Investors may also assign a lower present value to future profits, weighing on growth stocks whose valuations depend heavily on earnings years ahead; the effect depends on subsequent inflation data and interest rates.^[4]

Impact

What to watch next

• October 29: September core PCE prices, a measure of consumer prices excluding food and energy, are forecast to rise 0.3% monthly versus 0.2% previously. Faster inflation would strengthen the case for a December increase; cooling would weaken it.
• October 29: Third-quarter GDP growth will test Warsh's description of strong economic activity. Resilient growth could give the Fed more room to keep restraining inflation.
• October 30: The third-quarter Employment Cost Index, which measures wages and benefits paid by employers, is forecast to rise 0.8% quarterly versus 0.9% previously. Slowing costs would ease concern about persistent labor-driven price pressure.