Fed Holds Rates at 3.75%–4.00%; Two Officials Push for Another Hike

The Federal Reserve left its benchmark interest rate unchanged Wednesday, but the decision exposed a notable split inside the central bank as two policymakers pushed for another increase, underscoring how inflation continues to pressure officials toward tighter policy.

The Federal Open Market Committee voted 10-2 in a statement released at 2 p.m. EDT on Oct. 28 to keep the federal funds rate at 3.75% to 4.00%. That left in place the quarter-point increase the Fed approved at its Sept. 16 meeting. In its latest statement, the Fed said, “The Committee decided to maintain the target range for the federal funds rate at 3-3/4 to 4 percent, in support of the Federal Reserve's dual mandate.”

The two dissenters were Lisa D. Cook and Beth M. Hammack, both members of the rate-setting committee. The Fed said each “preferred to raise the target range for the federal funds rate by 1/4 percentage point at this meeting.” Their dissents made the hold notable not as a shift toward easier policy, but as a pause that still carried clear internal support for another hike.

The statement paired that split with firm language about the economy and inflation. The Fed said, “Economic activity is expanding at a strong pace.” At the same time, it said, “Inflation remains elevated.” The committee also emphasized its inflation-fighting stance, saying, “The Committee will deliver price stability.”

That tone fits the recent inflation data that policymakers had in hand before the meeting. The Fed’s preferred inflation gauge, the personal consumption expenditures price index, showed headline prices up 3.4% in August from a year earlier, while core PCE, which excludes food and energy, rose 3.0%. More recently, the consumer price index rose 3.7% in September from a year earlier. All of those readings remain above the Fed’s 2% longer-run goal, helping explain why the central bank paused after September’s increase without signaling that the inflation fight is over.

The decision also left intact the Fed’s operating framework. In a same-day implementation note, the central bank said it is continuing its policy of maintaining ample reserves in the banking system and set key administered rates effective Oct. 29. The interest rate paid on reserve balances, or IORB, was set at 3.90%. The standing overnight repo rate was set at 4.0%, and the standing overnight reverse repo offering rate at 3.75%. The Fed also directed the New York Fed’s trading desk to conduct operations as needed to keep the federal funds rate within the 3.75% to 4.00% target range. Separately, the Federal Reserve Board unanimously approved a primary credit rate of 4.0%.