Fed Holds Rates at 4% as Two Officials Demand Hike

The Federal Reserve kept its benchmark interest rate at 3.75% to 4% on Wednesday, defying the wishes of two committee members who argued for an immediate increase. Governor Lisa Cook and Cleveland Fed President Beth Hammack voted against the hold, seeking a quarter-point hike to combat persistent price pressures. The rest of the 12-member panel stayed the course, maintaining the rate level established in September.

The central bank’s post-meeting statement acknowledged that inflation remains elevated. It noted that gathering more data would help determine the appropriate policy stance to return inflation to the 2 percent goal. The statement described economic activity as expanding at a strong pace, a notable upgrade from the term solid used in the previous month. No other substantial changes were made to the language, other than removing a sentence explaining the September rate increase.

Cook’s dissent marks a first in her tenure at the Fed, which began in 2022. Her position is currently entangled in a legal dispute with the White House. President Donald Trump has sought to remove her over allegations regarding home loan application information. Although the Supreme Court previously blocked the removal, the administration has resumed efforts, with a hearing scheduled for early November. Trump, who nominated Chairman Kevin Warsh, has long criticized the Fed for maintaining rates higher than he believes necessary.

Other committee members who favored higher rates in July, including Dallas President Lorie Logan and Minneapolis President Neel Kashkari, joined the majority this time. The decision aligns with a broader desire among officials to wait for additional economic indicators before tightening policy further. Vice Chair Philip Jefferson and New York Fed President John Williams both indicated that current conditions allow time for evaluation.

The hold came ahead of the November 3 midterm elections, where control of Congress is at stake. While the Fed values political independence, some observers speculated that officials might avoid a rate hike so close to the vote. The decision was widely anticipated, as markets priced in a less than 10% chance of a hike according to the CME Group’s FedWatch tool. The S&P 500 retained its gains following the announcement.

Chairman Warsh used a news conference to announce structural changes for the following year. He stated that the FOMC will hold eight meetings in 2027. One of these will focus exclusively on broad monetary policy strategy without a rate vote or policy statement. The remaining seven will be standard policy-setting meetings. Warsh projected that by 2028, two meetings will be dedicated to strategy discussions, leaving six for policy decisions.

The economic backdrop presents a complex picture for policymakers. Inflation, measured by the Fed’s preferred gauge, is expected to exceed 3% for September, even after excluding volatile food and energy costs. Economists note that price increases have broadened beyond the energy sector and the impact of the Iran war. Conversely, unemployment remains low, and the Atlanta Fed’s GDPNow tracker points to 3.4% annualized growth for the third quarter, the strongest in a year.

Andrew Davis, head of investment strategy at Bryn Mawr Trust, noted that the wait-and-see approach makes sense given the current cycle. He observed that the economy is slowing but has not broken. Holding rates steady provides policymakers with the time needed to assess how the economy is responding to the September hike and recent increases in longer-term borrowing costs.