FOMC holds last meeting before midterm elections
Heather Long, chief economist at Navy Federal Credit Union, discusses the upcoming interest rate decisions from the Federal Reserve.
The Federal Reserve opted to keep its benchmark interest rate unchanged on Wednesday. Amid persistent inflation, policymakers decided to pause and await further economic data following the rate hike implemented in September.
Fed officials voted 10-2 to maintain the federal funds rate within the 3.75% to 4% target range. This decision follows a 25-basis-point increase in September, which marked the central bank’s first rate hike since July 2023.
The Federal Open Market Committee (FOMC), which oversees monetary policy for the central bank, noted that economic activity “is expanding at a strong pace.” This growth persists despite uncertainties stemming partly from geopolitical factors, supported by robust capital investment and productivity. Additionally, the committee observed that job growth has “kept pace with the workforce, and the unemployment rate has changed little.”
The FOMC statement further noted that <a 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% goal. The Committee will deliver price stability."
WHY THE FED ISN’T READY TO DECLARE VICTORY ON INFLATION
Federal Reserve Chair Kevin Warsh stated that the central bank remains committed to bringing inflation back to its 2% target.
Two members dissented from the FOMC’s decision to <a interrogating reality" when evaluating economic conditions during each FOMC meeting. He added that this assessment is currently complicated by elevated inflation, a resilient labor market, and high levels of investment.
Warsh described labor market conditions as “quite positive” regarding the Fed’s mandate to promote full employment. However, he noted that concerning the price stability mandate, “Americans, of course, are still dealing with inflation that has been running above the committee’s objective for close to six years. It’s our responsibility to get inflation down.”
He mentioned that since the September rate hike, officials have observed that credit and financial conditions have tightened for households and businesses “much as we would expect.”
Warsh added that market participants are “becoming somewhat more discerning in their capital allocations. And while overall financial conditions are tighter, I’m unwilling and unable to call them tight. But broadly, these developments go in the direction of achieving a longer, more durable period of economic growth and price stability.”
Federal Reserve leaves rates unchanged
The Fed chair also provided an update regarding the FOMC meeting schedule. He announced that starting next year, the committee will continue to hold eight meetings annually, but one meeting in 2027 “will focus exclusively on broad monetary policy strategy, with neither a vote on the federal funds rate nor a policy statement anticipated. The rest will be regular FOMC policy-setting meetings.”
Warsh indicated that he expects the FOMC to dedicate two meetings to strategic discussions in 2028, with the remaining six focused on policy decisions.
“Getting policy right involves assessing near-term developments at timely, regular and information-rich intervals, but it’s equally important we reserve time and space as an intellectually diverse group for strategic deliberations, for thinking anew about big questions, looking out over longer time horizons,” he said.
“I believe the setting of the meeting schedule and agenda is more than some administrative detail. It’s an institutional choice affecting the nature and the quality of our deliberations and ultimately, the wisdom of our decisions. It’s yet another change to get the conduct of monetary policy on the right track,” Warsh added.
FEDERAL RESERVE HIKES INTEREST RATES FOR FIRST TIME SINCE 2023 AMID STUBBORN INFLATION
During the briefing’s question-and-answer session, Warsh was asked if the Fed maintains a soft inflation target, given the decision to <a What I can do is tell you there's no soft inflation target and no implicit inflation target. There's a target of price stability and it's 2% as measured by PCE," Warsh said. "When consumers interrogate reality, they look outside their window too. They go to the gas station too, and they see the prices are up."
“If you look out over the horizon, if you look at most but not all measures, what you see is households, businesses, financial markets – they have the confidence that they should have that this central bank will deliver price stability,” he added.
The Fed chair was asked about the relationship between oil prices and inflation, and how quickly inflation might decline if oil prices drop.
Warsh responded that “to the extent that oil prices were to move lower, again, probably due to geopolitical events, that’s something that we’re going to have to interrogate” regarding the Fed’s dual mandate. He also noted that oil futures prices have “moved up over the course of the last several weeks, and I can’t help but take note of that too.”
When asked if the upcoming midterm elections influenced the decision to keep rates on hold, the Fed chair stated that “politics played no role in the decision.” He added that the election was not discussed during the meeting and that there is “an information-rich interval in the coming period, having nothing to do with politics.”
WHITE HOUSE ECONOMIC CHIEF REVEALS WHY AMERICANS AREN’T FEELING OPTIMISTIC ABOUT ECONOMY
What experts are saying
Kay Haigh, global head and CIO of fixed income and liquidity solutions at Goldman Sachs Asset Management, stated that the firm anticipates the Fed will “resume rate hikes in December.”
“September’s strong CPI print is a reminder that upside inflation risks remain, and the Fed is likelyto look to take out further insurance. While the September dot-plot suggests just one more hike, another increase in energy prices or further strong data prints could bring additional tightening into play next year,” Haigh added.
Seema Shah, chief global strategist at Principal Asset Management, remarked that the “Fed has time on its side,” noting that anchored inflation expectations and limited second-round effects provide policymakers with “room to wait for more data.”
“AI may be booming, but the broader economy is not firing on all cylinders, and elevated geopolitical uncertainty argues against rushing another hike. But the direction of travel remains clear. The Fed is still taking back some of last year’s rate cuts, and the two dissents underline that tightening bias,” Shah added.
What’s next for the Fed?
The next FOMC meeting is scheduled for Dec. 8-9, a time when markets expect officials to raise interest rates.
Following the decision to maintain current rates in October, the probability of a 25-basis-point hike in December increased to 82.6%, up from 78.3% the previous day, according to the CME FedWatch tool. The likelihood of rates remaining unchanged stayed steady at 16.9%.
What did the October meeting mean for markets?
During the final hour of trading, the S&P 500 Index was up 0.26%.
The Dow Jones Industrial Average rose 0.28%, while the Nasdaq Composite gained 0.17%.
