The Federal Reserve kept interest rates unchanged on Wednesday, holding its benchmark federal funds rate in a range of 3.75% to 4% as policymakers assessed persistent inflation and signs of resilient economic growth.

The Federal Open Market Committee (FOMC) voted 10-2 to maintain rates, in a widely anticipated decision.

Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented, favouring a quarter-percentage-point increase.

The decision leaves borrowing costs unchanged after the Fed raised rates by 25 basis points in September.

However, policymakers offered no clear signal about whether another increase would come at their next meeting in December.

In its post-meeting statement, the Fed said inflation remained elevated, and that additional information would help officials determine the appropriate policy stance to return inflation to its 2% target.

“The Committee will deliver price stability,” policymakers said.

Inflation and economic growth complicate the Fed’s decision

The Fed’s decision comes amid continued price pressures and signs of economic strength.

The consumer price index rose in September at its fastest pace in five months, driven largely by higher energy prices linked to the Iran war.

However, the report also showed inflation spreading across goods and services, adding to the challenge facing policymakers.

The Fed reiterated that economic activity was expanding “at a strong pace” and described domestic spending as “resilient”.

It also said the unemployment rate had changed little.

Strong consumer spending and investment in artificial intelligence are supporting economic growth.

Economists expected data due Thursday to show that the US economy expanded at an annualised rate of approximately 3.2% in the third quarter.

Policymakers were also due to receive fresh inflation data Thursday, when the Bureau of Economic Analysis releases the September personal consumption expenditures price index, the Fed’s preferred inflation gauge.

The incoming data could help officials assess whether inflation is easing sufficiently or whether further monetary tightening is necessary.

Two officials dissent as December rate outlook remains uncertain

Cook and Hammack were the only two FOMC voters who favoured raising rates at Wednesday’s meeting.

Cook’s dissent was her first since joining the Fed in 2022.

She remains involved in a dispute with President Donald Trump, whose administration has pursued efforts to remove her over allegations concerning mortgage applications that she has denied.

The administration has scheduled a hearing in early November to examine the allegations.

Cook has said she would be unable to attend.

The dissent also highlights differences among policymakers over how aggressively to respond to inflation.

Dallas Fed President Lorie Logan and Minneapolis Fed President Neel Kashkari, who had previously expressed support for higher rates, voted with the majority on Wednesday.

Tom Graff, chief investment officer at financial advisory firm Facet, said the Fed’s decision to hold rates could set the stage for an increase in December, but argued that policymakers should have acted sooner.

“I believe this was a mistake: the Fed should have hiked today,” Graff said.

He argued that Fed Chair Kevin Warsh’s decision to avoid forward guidance meant policymakers needed to demonstrate their commitment to fighting inflation through their actions.

“There isn’t any material difference between hiking now and hiking in December, especially since a December hike is fully priced in. Hiking today would have bolstered Warsh’s credibility as an inflation fighter. By waiting, he risks coming off as hesitant, or worse, complacent”, Graff added.

Markets had largely priced in a pause

Expectations for the Fed’s latest decision shifted considerably in recent weeks.

Following September’s rate increase, the probability of another hike in October climbed above 70%, according to federal funds futures pricing.

Those expectations subsequently declined after Fed Vice Chair Philip Jefferson and New York Fed President John Williams said the September move had given policymakers time to assess economic conditions.

By Wednesday, markets were pricing in less than a 10% chance of a rate increase.

Graff said markets were pricing in one more rate hike in 2026, followed by one or two additional increases in 2027, but he believes the risks are tilted towards more tightening.

“I believe the risk is to the upside. As long as the AI infrastructure buildout continues at a breakneck pace, broad economic growth will be relatively strong. Job growth might be mediocre, but we’ve already seen that inflation can stay stubbornly high even with a somewhat soft labor market. The geopolitical risk also looks skewed to the upside. If the status quo holds in Iran, oil prices stay high, and any escalation would only add to that risk”, Facet CIO added.

The decision leaves investors assessing the likelihood of further tightening in December and potentially in 2027.

While futures pricing points to the possibility of additional increases, the Fed’s statement did not commit policymakers to a particular course.

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