Fed Holds Rates Unchanged as Two Officials Favor 25-Basis-Point Hike: December Hike Suspense Left to Kevin Warsh Press Conference

TradingKey - On October 28 Eastern Time, the Federal Reserve maintained the target range for the federal funds rate at 3.75%–4% in a 10-2 vote, in line with widespread market expectations prior to the meeting. Following the rate hike in September, the key to this pause lies in whether the Fed is waiting for policy effects to materialize or believes that the necessity for further monetary tightening has diminished.

The FOMC statement showed that the Committee remains vigilant on inflation. The Fed stated that inflation remains elevated, will use additional information to determine the appropriate policy stance to ensure inflation returns to 2% "in a timely manner", and emphasized its commitment to achieving price stability. This wording leaves room for continued tightening without locking in action for December in advance.

The voting split was also a highlight of this meeting. Lisa D. Cook and Beth M. Hammack advocated for a 25-basis-point rate hike, aligning with Morgan Stanley economists' prior expectation of two dissenting votes and demonstrating that demands for immediate policy tightening persist within the Committee.

The economic assessment provided the context for this division. The statement noted that economic activity expanded at a solid pace, domestic spending was resilient, and productivity and capital investment performed strongly; job growth kept pace with changes in the size of the labor force, and the unemployment rate changed little. Therefore, this pause was not accompanied by a significantly weaker economic assessment, and the rate-hiking cycle could still continue.

For the market, the key signal from this statement is that interest rates remain unchanged for now, but inflation pressures and the two dissenting votes supporting a rate hike still leave room for subsequent rate hikes.

Federal Reserve Chair Kevin Warsh will explain the reasons for the pause and future policy conditions later, which will influence market judgments regarding a December rate hike: if he emphasizes the spread of inflation and economic resilience, rate hike expectations may warm up; if he emphasizes that previous tightening is still transmitting, it may reinforce expectations of continued observation.