The Federal Reserve just hit pause. On Wednesday, the Fed kept its key rate at 3.75% to 4% in a 10-2 vote, according to its official statement. But as the Fed holds rates steady, two officials broke ranks. Both wanted a quarter-point hike right now.
That split says a lot. Inflation is still running hot, and the Fed admits it. Yet with the midterms six days away, most of the committee chose to wait. On Monday, we argued that the Fed can’t blink for the election. Today, it blinked, at least for now.
Key Takeaways
- The Fed kept the federal funds target range at 3.75% to 4% in a 10-2 vote.
- Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented. Both wanted a quarter-point hike.
- The statement says inflation “remains elevated” and the economy is “expanding at a strong pace.”
- Consumer prices rose 3.7% in the year through September.
- Markets expect hikes to start in December and continue into 2027.
Why the Fed Holds Rates While Inflation Climbs
“Inflation remains elevated,” its statement reads. It also says the economy is “expanding at a strong pace,” an upgrade from “solid” in September, CNBC notes. So growth is strong and prices are rising. Normally, that is the textbook case for a hike.
Instead, the committee chose patience. “The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee’s 2 percent goal,” the statement said. Then it added a short promise: “The Committee will deliver price stability.”
That promise is getting harder to trust. In September, the Fed raised rates for the first time in more than three years, NPR reports. Since then, inflation has sped up. Consumer prices in September were 3.7% higher than a year earlier. Also, the Fed has now missed its 2% target for five and a half years, Reuters notes.
Timing matters, too. The Fed chose to delay any change until after next week’s midterms, Reuters reported. Dan North, a senior economist at Allianz Trade, put it bluntly to NPR: “It would be suspicious if there were a hike before the midterm.”
Two Dissenters Wanted the Fed to Hike Now
Not everyone went along. Governor Lisa Cook and Cleveland Fed President Beth Hammack both voted to raise rates by a quarter point. Cook’s vote is the bigger surprise. In fact, it was her first dissent since she joined the Fed in 2022 as a Biden appointee, CNBC reports. Whatever you think of Trump’s effort to remove her, this was a vote to get tougher on inflation.
Meanwhile, Chair Kevin Warsh announced a change for next year. In 2027, one meeting will focus “exclusively on broad monetary policy strategy, with neither a vote on the federal funds rate nor a policy statement anticipated,” he said. In other words, seven of next year’s eight meetings will set policy, not all eight.
When the Fed Holds Rates, Your Wallet Waits
The Fed’s benchmark rate helps set the cost of short-term borrowing, like credit cards. Mortgage rates hit a three-year high of 7.4% earlier this month before easing slightly, NPR reports. On top of that, the 10-year Treasury yield rose above 5% after the decision.
Paychecks are not keeping up. Average wages rose just 3% in the 12 months through September, according to NPR. That is slower than the 3.7% rise in prices. “Their purchasing power is actually declining,” Moody’s Analytics economist Mark Zandi said of lower- and middle-income Americans.
Energy is a big part of the squeeze. NPR ties the recent spike in energy prices to the U.S. war with Iran. Diesel also remains costly, and diesel moves goods and runs farms. Gas did dip lately, as our consumer confidence post noted, but one good month does not undo five years. As one CEO told Reuters, “A hold isn’t relief.”
The Fiscal Conservative Take
As a fiscal conservative, I will say what the Fed can’t. When the Fed holds rates, it is only handling half the inflation story. The other half is spending. When Washington keeps borrowing, it pours more demand into an economy that is already strong. Then the Fed has to push rates higher to cool it down. As a result, families pay twice, once at the store and again on their loans. So Congress should not wait for the Fed to fix this alone. Cutting waste and reining in deficits would ease pressure on prices and on rates.
The Fed says it will deliver price stability. If so, Cook and Hammack had the stronger case this week. Because the economy is strong, now is the time to finish the job. Voters are already casting ballots, with more than 36 million early votes in. They will remember who took inflation seriously.
FAQ
Why did the Fed hold rates in October 2026?
The Fed said it wants more information before its next move, while inflation remains elevated. Reuters reported that the pause delays any change until after the Nov. 3 midterms.
Will the Fed raise rates in December?
Markets think so. Futures point to a strong chance of a December hike and perhaps one or two more in 2027, CNBC reports. However, the Fed has not committed to any move.
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