Fed Holds Rates Steady Amid Strong Expansion and Elevated Inflation

The Federal Reserve held its benchmark interest rate steady on Wednesday.

The decision keeps the federal funds rate at a range of between 3.75 percent and 4.0 percent, the range set at its previous meeting in September.

“Economic activity is expanding at a strong pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little,” the Fed said in a statement at the conclusion of its two-day meeting. “Inflation remains elevated.”

Two Fed officials, Governor Lisa Cook and Cleveland Fed President Beth Hammack, dissented from the decision, preferring to raise the target range for the federal funds rate by one-quarter of a percentage point.

At a press conference on Wednesday, Fed chair Kevin Warsh announced a significant change to the Fed’s meetings. Beginning next year, one of the Fed’s eight meetings will be focused on broader economic questions and monetary strategy rather than directly considering the Fed’s policy rates. After that meeting, the Fed would not issue a post-meeting statement, Warsh said. Warsh added that he expects that the strategy meetings will expand to twice a year in 2028.

The September increase was the first increase in three years. The move marked a reversal of the Fed’s previous rounds of cuts in late 2024 and 2025, moves that were spurred by concerns among Fed officials that the economy was slowing and the labor market was weakening. The increase indicated that Fed officials are now confident in the resilience of the economy and view stubborn inflation as a greater risk.

The Fed says it targets two percent inflation. In the pre-pandemic era, inflation consistently undershot that target. Since March of 2021, inflation has run above the target.

The personal consumption expenditures price index, the gauge the Fed favors to measure inflation, was up 3.4 percent in August, the latest month for which the index has been released. It rose by the same amount in July, which was down from the June reading of 3.5 percent and the May reading of 3.8 percent. The September reading is due out Thursday.

Higher gasoline prices have pushed up inflation this year. In recent months, however, inflationary pressures have begun to show up in a broader swath of prices, raising concerns that inflation might be becoming more entrenched.

The decision to leave the benchmark unchanged was widely anticipated by investors. Earlier this week, the futures market was pricing in a 90 percent chance that the Fed kept the federal funds rate steady.

Several Fed officials have signaled that they expect the Fed to raise rates at the December meeting. The CME Group’s FedWatch tool, which tracks the fed funds futures market, says the market implies around an 88 percent chance of a hike at that meeting.

The Fed upgraded its assessment of economic growth, describing activity as expanding at a “strong pace,” compared with the “solid pace” cited in September. The central bank also reiterated its assessments that consumer spending has been resilient, productivity growth is strong, capital investment is robust, and employment has kept pace with the growing workforce. The upbeat description suggests Fed officials see little evidence that higher interest rates are undermining the expansion, potentially giving them greater latitude to tighten monetary policy further to bring down inflation.