Fed Holds Rates Steady as Two Officials Push for a Hike

The Federal Reserve voted Wednesday to leave its benchmark interest rate unchanged, choosing patience in its effort to bring down inflation even as evidence mounts that price pressures are harder to tame than officials had expected.

The Federal Open Market Committee held the overnight funds rate in a range of 3.75% to 4%, where it has stood since a quarter-point increase approved in September. The outcome was widely anticipated. Markets had put the odds of a hike at under 10%, according to the CME Group's FedWatch tool, and the S&P 500 held onto its gains after the announcement.

Two of the 12 voting members dissented. Governor Lisa Cook and Cleveland Fed President Beth Hammack both preferred a quarter-point increase. It was the first dissent for Cook since she joined the Fed in 2022 as an appointee of President Joe Biden. She is at the center of a continuing dispute in which President Donald Trump has sought to remove her over allegations about information she gave on home loan applications. The Supreme Court halted the earlier attempts, but the administration has restarted the effort, with a hearing set for early November.

Hammack, Dallas Fed President Lorie Logan and Minneapolis Fed President Neel Kashkari all voted against the decision when the committee held rates in July, and Logan and Kashkari have called for higher rates. This time, those two sided with the majority.

The post-meeting statement said that "inflation remains elevated" and that more information would help the committee decide on the right stance to return inflation to its 2 percent goal. It described economic activity as "expanding at a strong pace," an upgrade from "solid" in September. Apart from dropping a sentence explaining the September hike, the text was largely unchanged.

The backdrop is complicated. Inflation has exceeded the Fed's 2% target for more than five years and has quickened since September. The Fed's preferred price gauge is expected to show a reading above 3% for September even without food and energy. Economists worry that inflation has spread beyond the energy sector and the effects of the Iran war. Meanwhile, unemployment remains low, and the Atlanta Fed's GDPNow tracker points to 3.4% annualized third-quarter growth, which would be the strongest in a year. Consumer spending has held up, and investment linked to artificial intelligence has supported activity.

Politics also hangs over the meeting. Midterm elections on Nov. 3 will decide control of Congress, and some observers have speculated that officials would be reluctant to raise rates so close to the vote. The Fed regards its political independence as a cornerstone. Trump, who nominated Fed Chairman Kevin Warsh, has long argued that rates should be much lower.

Futures markets see a strong chance of another hike at the December meeting, and perhaps one or two more in 2027. Warsh has avoided offering forward guidance, though committee members signaled in June through the "dot plot" that another increase this year was likely. Vice Chair Philip Jefferson and New York Fed President John Williams have both said conditions give policymakers time to weigh their next step.

"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, head of investment strategy at Bryn Mawr Trust and a former BLS analyst. "The economy is slowing, but slowing and breaking are two different things."

Warsh also announced changes to next year's meeting schedule at his news conference. The committee will keep eight meetings a year, but in 2027 one will focus only on broad monetary policy strategy, with no rate vote or policy statement expected. Warsh said he expects two strategy-focused meetings and six policy-setting meetings in 2028.