Federal Reserve holds rates at 3.75%-4% as two officials push for a hike

What happened

The Federal Reserve kept its policy rate on hold on Wednesday, and the Financial Times (FT) reported that it did so despite worsening US inflation, with officials waiting for more information on price growth. According to the Fed's statement, the Federal Open Market Committee (FOMC), the group that sets US rates, voted 10 to 2 to keep the federal funds target range at 3.75% to 4%. The two votes against came from Governor Lisa Cook and Beth Hammack, head of the Cleveland Fed, each preferring to lift the range by a quarter of a percentage point. The Fed said growth is strong, hiring is keeping pace with the workforce and inflation remains elevated.

What it means

This was a pause, not a change of direction. In September the Fed raised rates for the first time since 2023, in Chair Kevin Warsh's first hike since taking over in May. The new statement drops September's wording about that hike and instead says gathering more data will guide what comes next, while repeating that the committee will deliver price stability. CNN read the new language as leaving the door open to another increase.

The inflation picture explains the tension. Consumer prices were 3.7% higher in September than a year earlier, Fortune reported, lifted by gasoline, and core inflation, which leaves out food and energy, came in at 2.6%, above forecasts. Bloomberg, via WealthManagement.com, noted that energy costs linked to the Iran war drove much of the rise but that price increases had spread across goods and services. Fresh readings on the Fed's preferred inflation gauge and on third-quarter growth are due on Thursday.

The split vote matters too. Hammack had been expected to dissent, but Cook had never before voted against a rate decision in her four years on the board, according to CNN. Two officials asking for a hike in a meeting that held rates shows how worried part of the committee is about prices. The decision also came less than a week before the US midterm elections, which Yahoo Finance said was seen as a reason to avoid bold moves.

Markets did not read the hold as the end of tightening. Futures data cited by Yahoo Finance put the chance of a quarter-point rise at the December 9 meeting at about 85%, and traders priced the rate climbing to nearly 4.7% by September 2027. At his press conference, Warsh said the consensus in the room was that the Fed's 'monetary medicine' was starting to work some, but that there were no firm conclusions. He also said that from 2027 one of the Fed's eight yearly meetings will be devoted to strategy, with no rate vote, rising to two such meetings in 2028.

The bull case

The Fed sees a strong economy, with resilient spending, robust investment and steady hiring, and the hold gives September's hike time to work before officials act again. Warsh said colleagues think policy is starting to bite. If upcoming inflation readings cool, the Fed could avoid having to tighten much further, which would ease pressure on stocks, bonds and borrowers after a run of nervous Fed days.

The bear case

Inflation is running hot and spreading beyond energy, and two officials already wanted a hike. CNN noted that waiting now could force a bigger move later if prices keep climbing. Higher yields are pushing mortgage rates up, with Realtor.com putting the 30-year average near 7.4%, and Warsh said he could not yet call financial conditions tight, hinting more tightening may be needed.