Fed Rate Decision: Warsh Holds Rates at 3.75% to 4%
In the latest fed rate decision, the United States Federal Reserve held its benchmark interest rate steady on Wednesday, keeping the federal funds range at 3.75 percent to 4 percent and pausing the round of rate increases it began only last month. The decision, announced on Wednesday afternoon by the Federal Open Market Committee, the central bank’s rate-setting body, was widely expected by financial markets. What drew the closest attention was not the hold itself but how the Fed would explain it, with Chair Kevin Warsh due to face reporters at a press conference beginning at 2:30 p.m. Eastern time and to answer the question at the heart of the meeting: why pause when inflation is still running well above the central bank’s target?
The vote was 10 to 2. Governor Lisa Cook and Cleveland Federal Reserve President Beth Hammack dissented, both preferring a further quarter-point increase. The split gave the decision a shape that analysts had been watching for all week. It was less fractious than the July meeting, when three officials dissented from a hold, but it still showed a committee divided over how urgently to respond to a fresh acceleration in prices. The statement that accompanied the decision was short, in keeping with the briefer statements issued since Warsh took over as chair in late May, and it added one new sentence that markets seized on as the rationale for waiting.
Fed Rate Decision: The Vote and the Statement
The Federal Open Market Committee said it would maintain the benchmark rate in its current range, leaving in place the level set by the quarter-point increase approved at the September meeting. That September move, the first rate hike in three years, had taken the range to 3.75 percent to 4 percent with effect from September 17, and Wednesday’s decision leaves it exactly there. The committee also repeated that it would continue its policy of maintaining ample reserves in the banking system, language carried over from earlier statements.
On inflation, the statement was direct. “Inflation remains elevated,” it said, before adding the new line that framed the pause: “The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation.” The wording stopped short of promising another increase, and it stopped short of ruling one out. It presented the pause as a deliberate wait for evidence rather than a change of direction, a formulation that allowed officials who wanted a hike immediately and officials who wanted more time to support the same outcome.
The two dissents were the most closely watched part of the announcement. Cook’s vote was her first dissent since she joined the central bank in 2022, after being appointed by former President Joe Biden. Her dissent came against an unusual political backdrop: President Donald Trump has sought to remove her from the Fed over allegations concerning information she provided on home loan applications, an effort the Supreme Court blocked earlier, with the administration renewing its attempt and a hearing scheduled for early November. Hammack, who leads the Cleveland Fed, also wanted a further quarter-point rise. Analysts at JPMorgan had said ahead of the meeting that they anticipated at least two hawkish dissents, and that is what the committee delivered.
Federal Reserve News: Why a Pause Now
The case for pausing, as set out in the statement and in the data behind it, rests on timing rather than on any claim that inflation has been beaten. The latest reports showed prices accelerating again in September. The Consumer Price Index rose to 3.7 percent from a year earlier, while core consumer prices, which strip out food and energy, edged up to 2.6 percent. Wholesale prices climbed by more than 6 percent, and the core Personal Consumption Expenditures price index, the Fed’s preferred inflation gauge, is projected to have exceeded 3 percent. The Fed’s target is 2 percent, measured by the PCE index, and initial estimates suggest both the headline reading and related measures that strip out some volatile commodity and non-market prices rose in September and remain lodged at 3 percent or higher on an annualised basis, with little progress in recent months.
Energy has been a major part of the story. After a summer lull that helped bring month-to-month inflation down in June and July, the global benchmark oil price has surged to around 114 dollars a barrel, rising about 20 percent since the start of September. Prices for diesel fuel, a critical input for agriculture, construction and transport, are near record highs and have helped widen inflation pressures across the economy. Some of the forces policymakers had hoped might ease inflation have yet to materialise, including an end to the United States-Israeli war with Iran and productivity gains from artificial intelligence. The artificial intelligence boom, meanwhile, is now seen across the Fed as a short-term driver of inflation even though it could make the economy more productive over the medium or long term.
That combination explains why the pause is best described as a hawkish hold rather than a turn towards easier policy. The central bank is not signalling that its work is done. It is signalling that it wants to see more data before deciding how much further to go, and that it wants to judge trends rather than react to a single month’s figures. Evercore ISI’s Krishna Guha had expected Warsh to explain a hold in exactly those terms, arguing that the central bank focuses on trends rather than individual data points and that there is a lag between setting rates and feeling their full effect. Deutsche Bank’s chief United States economist, Matt Luzzetti, expected Warsh to indicate that the recent inflation data strengthens the case for additional increases over time, while skipping October gives officials more room to assess the trend.
FOMC Meeting: From September’s Hike to October’s Hold
The October meeting was the second under a new policy direction. Before September, the rate had been parked at 3.50 percent to 3.75 percent all year. The September increase broke a three-year run without a hike and was approved unanimously, a show of unity that did not survive the next meeting. In July, the committee had held rates and drawn three hawkish dissents, from Hammack, Neel Kashkari and Lorie Logan. October’s two dissents therefore marked a smaller, but still visible, disagreement, and commentators described the internal debate as less hawkish in tone than the summer argument even though the dissenters still wanted tighter policy.
Warsh himself had refused to preview the decision. Speaking at the International Monetary Fund and World Bank meetings in Bangkok on October 16, he said he did not prejudge meetings and did not believe in saying in advance what he might do at the meetings remaining in the year. “I don’t prejudge meetings,” he said, adding that the Fed was not in the business of hinting at its next move weeks ahead of time. That stance left markets to price the outcome on their own, and they did so with unusual confidence. On the Kalshi prediction market, the contract for the Fed maintaining the rate traded at about 87 percent, with a quarter-point hike at about 13 percent and a cut at under 1 percent. Fed funds futures told a similar story, with roughly 84 percent to 86 percent odds of a hold.
Inflation Report: The Data Still to Come
The pause is, in part, a bet that the next batch of data will clarify a picture that is currently blurred. The PCE report for September will be released on Thursday, a day after the policy meeting, but enough of the component data is already in hand for policymakers to have a firm estimate of the numbers. The advance estimate of third-quarter gross domestic product is also due on Thursday, from the United States Bureau of Economic Analysis. Together, those two releases will show whether the economy is still growing solidly while prices rise, or whether growth is cooling in a way that would argue for restraint.
Mortgage Rates Today and What the Hold Means for Borrowers
For households, the most immediate question is what the hold means for borrowing costs, and here the answer is less direct than many people assume. The Fed does not set mortgage rates. Mortgage rates move mainly with the bond market, and in particular with the yield on the 10-year Treasury note, which stood above 5 percent as traders awaited the announcement. That is why mortgage rates can rise even when the Fed stands still, and why they rose sharply after the September hike.
Last week, mortgage rates averaged 7.32 percent, according to Freddie Mac, after briefly dipping below 6 percent in late February. The steady climb through the year has been fuelled by the same inflation concerns that prompted the Fed to act in September. Bankrate housing market analyst Jeff Ostrowski put the lesson bluntly after the September move: “The Fed raised its benchmark rate a quarter-point, and mortgage rates jumped three-quarters of a point in a month. The lesson? Mortgage rates move with 10-year Treasury yields, not the federal funds rate.” For borrowers, that means Wednesday’s hold does not by itself bring relief. Relief would come if bond yields fall, and bond yields will fall only if investors become convinced that inflation is genuinely heading back towards 2 percent.
What Happens Next: December, Earnings and the Midterms
The next test comes quickly. After the market closes on Wednesday, Alphabet and Microsoft report their quarterly results, and those earnings will shape how investors judge both the artificial intelligence boom and the broader economy. The technology giants are among the largest spenders on artificial intelligence infrastructure in the world, and their results will show whether the sums they are pouring into data centres and chips are producing the revenue growth investors have been promised. Amazon follows on Thursday. Those reports, combined with the PCE and GDP data, will give the Fed a much fuller picture before its December meeting than it had on Wednesday.
For now, the fed rate decision leaves the central bank in a holding pattern of its own making: rates high enough to restrain inflation, a committee divided over how much further to go, and a calendar crowded with data that could tip the balance either way. The pause gives Warsh time, and it gives the economy time to absorb the September hike. Whether that time produces the clearer inflation picture the Fed says it is waiting for will be known within weeks, first from Thursday’s PCE report, then from the December meeting. Until then, borrowers, investors and voters heading to the polls on November 3 will all be living with the same rate: 3.75 percent to 4 percent, held, not cut, and not yet raised again.
Source: CNBC