The Fed holds at 3.75–4%, and two officials vote to hike

The Federal Open Market Committee voted on October 28 to “maintain the target range for the federal funds rate at 3-3/4 to 4 percent.” Six weeks earlier it had raised rates for the first time in three years. The vote was 10–2. Lisa D. Cook and Beth M. Hammack voted against the action because they preferred to raise the target range by a quarter point. Interest on reserve balances stays at 3.90% and the primary credit rate stays at 4.0%.

The statement describes an economy running hot. It says “economic activity is expanding at a strong pace” and “job gains have kept pace with the workforce.” It also says “inflation remains elevated.” The committee gave no explicit guidance about further firming. It said only that “the accumulation of more information will help the Committee determine the policy stance.”

What Warsh said about credit

Chair Kevin Warsh used his press conference to describe the effect of the September hike. “Since our policy action in September, we have started to see some changes in financial and credit conditions,” he said. “They have tightened for some businesses and households, much as we would expect.” He added that “while overall financial conditions are tighter, I’m unwilling and unable to call them tight.” On prices he was blunt. “Inflation is too high. Energy and related prices have moved higher again in recent weeks.”

Warsh would not commit to December. “I don’t believe in forward guidance absent exigent circumstances, absent a crisis,” he said. He also restated the target. “There’s a target of price stability and it’s 2 percent as measured by PCE.” He announced that one 2027 meeting will be devoted to strategy, with no rate vote and no policy statement expected.

Two votes to hike at a meeting that held tells you where the risk sits. Plan for December to be live.

Where it lands on a community balance sheet

The data released the next day gave both sides of the committee something to point to. The BEA reported third-quarter growth at a 3.4% annual rate, and the PCE price index rose 3.6% over the year in September. The 10-year Treasury yield has held near 5% for the past week. Short rates have barely moved, so the yield curve stays positive from three months out to ten years. The next decision is December 9.