The Federal Reserve held its benchmark interest rate in a range of 3.75% to 4% on Wednesday, choosing to pause policy tightening following a September rate increase that marked its first borrowing cost rise in three years. The rate-setting Federal Open Market Committee delivered a split 10-2 decision less than a week before Americans vote in the midterm elections. Federal Reserve Governor Lisa Cook and Cleveland Fed President Beth Hammack both dissented, casting votes in favor of another quarter-point hike amid elevated energy prices and an annual inflation rate standing at 3.7%.
The split vote contrasts with September, when central bank officials voted unanimously for an increase. Despite predictions that Dallas Fed President Lorie Logan might also favor tighter policy, she ultimately backed the decision to hold rates steady. Some economists suggested the formal dissents could strengthen the position of Fed Chair Kevin Warsh by demonstrating ongoing backing within the committee for additional monetary tightening. In its accompanying statement, the central bank reaffirmed that inflation remains elevated and reiterated its commitment to delivering price stability. The Fed indicated that collecting further economic data will assist in determining the future policy stance needed to ensure a timely return of inflation to its 2% target, modifying September language that described its previous rate increase as supporting a timelier path back to target.
The Fed upgraded its assessment of economic activity, stating that the economy is expanding at a strong pace rather than the solid pace noted in September, while observing that uncertainty remains elevated owing in part to geopolitical developments. In June and July, during the first meetings chaired by Warsh, official statements explicitly cited the Middle East conflict and attributed above-target inflation to supply shocks in sectors including energy. Central bank policymakers have since removed those direct references, using less specific phrasing regarding the war in Iran. Meanwhile, several senior Fed officials have recently downplayed the immediate need for action. Vice Chair Philip Jefferson pointed to a sharp increase in longer-term borrowing costs, and New York Fed President John Williams remarked that there is no need for urgency.
The dissenting vote from Cook comes during an ongoing effort by US President Donald Trump to remove her from office over mortgage fraud allegations, which she denies. President Trump has established a three-person committee to evaluate whether valid grounds exist to discharge Cook, who was appointed by former US President Joe Biden. Cook is scheduled to appear before the panel next week, following a Supreme Court decision in June that blocked a prior effort to remove her from her post.
Economic pressures remain persistent across the United States. Consumer prices rose 3.7% year-over-year in September, while core inflation, which excludes volatile food and energy costs, reached 2.6%. Gasoline prices, which have remained above $4 a gallon for three consecutive months, accounted for more than half of September's price growth, while diesel surged to a record high of $6.53 a gallon in late September. Global oil prices have fluctuated sharply, with Brent crude falling more than 6% on Monday as diplomatic efforts regarding the Iran war progressed, trading around $111.75 a barrel late Wednesday compared to roughly $72 before the conflict broke out in late February. Higher borrowing costs continue to impact consumers, as average 30-year US mortgage rates climbed to a three-year peak of 7.4% in early October.
US labor market conditions have shown signs of cooling, with employers creating just 29,000 jobs in September as unemployment edged up to 4.2%, though the Fed noted that job creation has kept pace with the workforce. Gross domestic product expanded at an annualized rate of 2.2% in the second quarter, while the Atlanta Fed's GDPNow tracker projects third-quarter growth at 3.5%. Following the monetary policy announcement, financial markets priced in an 87.5% probability of a quarter-point rate increase at the Fed's upcoming December 8-9 meeting, up from 73% on Tuesday according to the CME Group FedWatch tool.
During his post-meeting press conference, Warsh echoed the committee's formal statement, observing that domestic spending has been resilient, productivity growth is strong, and capital investment remains robust despite persistent inflation. Warsh reiterated his long-standing opposition to forward guidance, referencing earlier remarks made in Bangkok where he stated that he does not prejudge meetings. He also announced structural adjustments to the FOMC calendar. While the Fed will continue holding eight annual meetings, specific sessions will be dedicated exclusively to strategy discussions without interest rate decisions or formal policy statements starting in autumn 2027.
Warsh outlined that in 2027, the central bank will conduct seven rate-setting meetings alongside one dedicated strategy meeting, followed in 2028 by six rate-setting sessions and two strategy meetings. Investors are closely watching upcoming economic reports for further signals. The US government is scheduled to release its initial estimate of third-quarter economic growth alongside September personal consumption expenditures inflation data on Thursday. Additionally, the European Central Bank is scheduled to announce its monetary policy decision on Thursday, with expectations pointing toward maintaining its deposit rate at 2.5% amid ongoing turbulence in French bond markets.
