The Federal Reserve held its benchmark interest rate steady amid elevated inflation, as policymakers opted to wait for additional economic data after raising rates in September. Fed policymakers voted 10-2 to leave the federal funds rate in its target range of 3.75% to 4%.
The decision was not unanimous. Cleveland Fed President Beth Hammack and Fed Governor Lisa Cook each voted in favour of raising interest rates by 25 basis points. Hammack also dissented in July, again favouring a hike, while the dissenting vote was a first for Cook.
WHAT THE STATEMENT SAYS
In its statement, the Fed said economic activity "is expanding at a strong pace", with strong productivity growth and capital investment, while job growth has "kept pace with the workforce, and the unemployment rate has changed little". The Fed also said uncertainty remains elevated "owing, in part, to geopolitical developments" and that domestic spending has been resilient.
The Fed added that inflation remains elevated and that the "accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee's 2% goal". In one assessment of the statement, the new language indicates that policymakers are still open to another hike down the road.
AFTER THE SEPTEMBER RISE
The hold follows the 25 basis point increase in September, the central bank's first interest rate increase since July 2023. At that meeting the committee decided to raise the target range for the federal funds rate by a quarter of a percentage point, in support of the Federal Reserve's dual mandate, and said the move would support a timelier return to the Committee's 2 percent goal. That statement was approved by a 12-0 vote.
This is the second monetary policy meeting during Kevin Warsh's chairmanship, which began in May, at which officials on the Fed's 12-person rate-setting committee cast dissenting votes. Kay Haigh of Goldman Sachs Asset Management said: "While the September dot plot suggests just one more hike, another increase in energy prices or further strong data prints could bring additional tightening into play next year."
WHAT IT MEANS FOR LENDERS AND BORROWERS
As long as the Federal Reserve keeps rates at the current target range of 3.75% to 4%, consumers are unlikely to see much relief. Credit card rates have climbed to their highest levels since late 2025, while 30-year mortgage rates have remained above 7%, making homeownership less affordable.
The average 30-year fixed-rate mortgage now sits at 7.33%, up from 7.12% last month, according to MND, and the rate on a home equity loan has risen to 8.77% from 8.28% in September, according to Bankrate. The average money market annual yield is 0.45%, up one basis point from last month, and the annual percentage yield on a five-year certificate of deposit is 1.83%, up eight basis points from September, according to Haver.
MARKETS LOOK TO DECEMBER
Traders have shifted their focus to the December meeting, where fed funds futures trading implies a roughly 85% likelihood of a rate hike, according to the CME FedWatch tool. Officials' decision to leave interest rates unchanged at this month's meeting may end up creating more urgency to hike rates when officials reconvene in December.
In the bond market, the 10-year Treasury yield ticked higher to 5.05%. "The more meaningful market risk remains Warsh's press conference," Ian Lyngen, head of US rates strategy at BMO Capital Markets, said in a note. "Investors will be looking for any further context for the pause."
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