October FOMC: Federal Reserve Holds Rates Stable Ahead of Elections

THE Federal Reserve On Wednesday, its benchmark interest rate was held steady amid high inflation, as policymakers opted to wait for additional economic data after raising rates in September.

Fed policymakers voted 10-2 to keep the federal funds rate within its target range of 3.75% to 4%. The move follows a 25 basis point rate hike in September, which was the central bank’s first interest rate hike since July 2023.

The Federal Open Market Committee (FOMC), the central bank’s body responsible for monetary policy decisions, noted that economic activity is “expanding at a brisk pace” despite uncertainty that is partly due to geopolitical developments, with strong growth in productivity and capital investment, while employment growth has “kept pace with the labor force and the unemployment rate has changed little.”

The FOMC statement added that inflation remains high and that “the accumulation of more information will help the Committee determine the appropriate policy direction to ensure a rapid return of inflation to the Committee’s 2 percent objective.” The Committee will ensure price stability.”

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Federal Reserve Chairman Kevin Warsh said the central bank remains focused on returning inflation to the 2% target. (Al Drago/Bloomberg via Getty Images)

There were two dissenters to the FOMC’s decision to leave interest rates unchanged: Cleveland Fed President Beth Hammack and Fed Governor Lisa Cook each voted in favor of raising interest rates by 25 basis points.

Chairman of the Federal Reserve Kevin Warsh said policymakers go through a process of “reality check” as they assess economic conditions at each FOMC meeting, adding that the process has been complicated by high levels of investment, a stable labor market and high inflation.

Warsh noted that labor market conditions are “pretty positive” on the side of the Fed’s dual mandate of promoting full employment, but added that on the price stability side, “Americans, of course, are still facing inflation that has exceeded the committee’s target for almost six years. It is our responsibility to bring inflation down.”

He added that since the Fed raised rates by 25 basis points in September, policymakers have found that financial and credit conditions have tightened for some businesses and households “as much as we expected.”

Warsh added that market participants are “getting a little more discerning in their capital allocations. And even though the overall financial conditions are tighter, I neither want nor can call them tight. But generally speaking, these developments point towards a longer and more sustainable period of economic growth and price stability.”

The Fed Chairman also provided an update on the revised FOMC meeting schedule, saying that starting next year, the FOMC will still hold eight meetings per year, but one of those meetings in 2027 “will focus exclusively on general monetary policy strategy, with no votes on the federal funds rate or any planned policy statements. The remainder will be regular FOMC policy-setting meetings.”

Warsh added that in 2028, he expects the FOMC to hold two meetings dedicated to strategy discussions, including six related to policy decisions.

“Good policy involves assessing short-term developments at timely, regular, information-rich intervals, but it is equally important that we reserve time and space as an intellectually diverse group for strategic deliberations, to rethink big questions, looking over longer time horizons,” he said.

“I believe that setting the timing and agenda of meetings is more than just an administrative detail. It is an institutional choice that affects the nature and quality of our deliberations and, ultimately, the wisdom of our decisions. It is yet another change to put the conduct of monetary policy on the right track,” Warsh added.

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During the question-and-answer portion of the briefing, Warsh was asked whether the Fed had a moderate inflation target given that policymakers held rates steady at this meeting.

“What I can do is tell you that there is no soft inflation target or implicit inflation target. There is a price stability target and it is 2% as measured by the PCE,” Warsh said. “When consumers question reality, they also look out the window. They also go to the gas station and see that prices are increasing.”

“If you look over the horizon, if you look at most but not all measures, you see households, businesses, financial markets – they have the confidence that they should have that this central bank will provide price stability,” he added.

Rising oil and gas prices have pushed inflation away from the 2% target this year. (Brandon Bell/Getty Images)

FOX Business’ Edward Lawrence asked the Fed Chairman about the correlation between oil prices and inflation, and how quickly inflation could fall in response to lower oil prices.

Warsh responded that “to the extent that oil prices were to fall, again, probably due to geopolitical events, that’s something we’ll have to interrogate” in terms of the Fed’s dual mandate, and noted that oil futures prices have “gone higher over the last few weeks, and I can’t help but take note of that as well.”

The Fed chairman was asked if next week’s midterm elections factored into the Fed’s decision to keep interest rates unchanged and responded that “politics played no role in the decision,” adding that politics and elections were not discussed at the meeting and that there will be “an information-rich period in the coming period, having nothing to do with politics.”

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What the experts say

Kay Haigh, global head and CIO of fixed income and liquidity solutions at Goldman Sachs Asset Management, said the firm expects the Fed to “resume rate hikes in December.”

“September’s strong CPI numbers are a reminder that upside inflation risks remain and the Fed will likely consider further reassurance. While the September dot plot suggests just more upside, another rise in energy prices or new strong numbers could lead to further tightening next year,” Haigh added.

Seema Shah, chief global strategist at Principal Asset Management, said “the Fed has time on its side” because inflation expectations are anchored and second-round effects are limited to give policymakers “room to wait for more data.”

“AI may be booming, but the broader economy is not firing on all cylinders, and elevated geopolitical uncertainty argues against further precipitous hikes. But the direction ahead remains clear. The Fed continues to roll back some of last year’s rate cuts, and both dissenters point to this tightening bias,” Shah added.

Warsh said the FOMC would reshape the agenda for one of its meetings in 2027 and two in 2028 to focus more on strategic issues rather than policy measures. (David Paul Morris/Bloomberg via Getty Images)

What’s next for the Fed?

The next FOMC interest rate meeting will take place on December 8-9, when the market expects policymakers to raise interest rates.

Following the decision to hold rates steady at the October meeting, the probability of a 25 basis point hike in December rose to 82.6%, up from 78.3% a day ago, according to the CME FedWatch tool. The odds of rates remaining stable were little changed at 16.9%.

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What did the October meeting mean for the markets?

The benchmark S&P 500 index was up 0.26% for the day in the final hour of trading.

The Dow Jones Industrial Average was up 0.28%, while the Nasdaq Composite rose 0.17%.