Fed holds rates at 3.75%-4% in split vote, signals more hikes may come

The US Federal Reserve left interest rates unchanged on Wednesday, October 28, holding its benchmark federal funds rate in a range of 3.75 percent to 4 percent, where it has been since a quarter-point increase in September.

The decision was widely expected, but the vote was split. Ten of the 12 voting members backed the hold, while two dissented in favour of another quarter-point rise: Governor Lisa Cook, in her first dissent since joining the Fed in 2022, and Cleveland Fed President Beth Hammack, according to CNBC.

Why rates are going up, not down

Unlike much of the past two years, the debate inside the Fed is now about whether to raise rates further. September's increase was the central bank's first since July 2023.

In its statement, the Fed said inflation "remains elevated" and described economic activity as "expanding at a strong pace", an upgrade from "solid" in September. Inflation has been above the Fed's 2 percent target for more than five years and has picked up since September. The Fed said it was waiting for the "accumulation of more information" before acting further.

Warsh on politics and process

The meeting came days before the US midterm elections. Fed Chair Kevin Warsh said "politics played no role in the decision."

He also announced a change to how the Fed works. "We believe eight meetings per year is the right number for the FOMC," he said, but added that one meeting would "focus exclusively on broad monetary policy strategy, with neither a vote on the federal funds rate nor a policy statement anticipated." He expects 2028 to include two strategy meetings and six policy meetings.

What markets expect

After the decision, futures markets pointed to a strong chance of another hike at the Fed's December meeting, and possibly one or two more in 2027. The CME FedWatch tool put the probability of a December increase at about 83 percent.

What it means for households

Higher rates make mortgages, car loans and credit card debt more expensive, while raising returns on savings. If the Fed does raise rates again, borrowing costs that have already been climbing since September are likely to keep rising into next year.