The Fed Held Rates, but Two Officials Wanted a Hike

The Federal Reserve kept its benchmark interest rate in a range of 3.75% to 4.00% on Wednesday, six weeks after raising it in September. The vote was 10 to 2. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented, and both wanted another quarter-point increase now, the Fed said in its 2 p.m. ET statement.

A hold was widely expected six days before the 3 November midterm elections. The two dissents were not.

What the statement changed

The Fed upgraded its view of the economy. “Economic activity is expanding at a strong pace,” the statement said, where September’s had said “solid.” It kept the line “Inflation remains elevated.”

The sentence that explained September’s hike is gone. In its place, the Fed said “the accumulation of more information” will guide its next step toward its 2% inflation goal. In plain words, the next move depends on the data, and the Fed isn’t saying which way it leans.

What Warsh said

“We just came out of a heck of a family fight,” Chair Kevin Warsh told reporters after the decision. He pointed to oil, which settled at $102.78 a barrel on Wednesday for US crude: “Energy and related prices have moved higher again in recent weeks.”

He also rejected the idea that the election shaped the call. “Politics played no role in the decision,” Warsh said. He gave no firm signal about December.

Cook’s vote stood out: by our count from the Fed’s statements, it was her first dissent since she joined the board in 2022. Hammack was one of three regional presidents who wanted a hike in July. Five of this year’s seven meetings have had at least one dissent, by the same count.

How markets took it

Stocks dipped after the statement and recovered while Warsh spoke. The S&P 500 slipped to almost flat about 15 minutes after 2 p.m., then traded mostly between 0.1% and 0.3% higher through the press conference, according to Yahoo Finance data.

The 10-year Treasury yield rose 4 to 5 basis points (hundredths of a percentage point) to about 5.04% after the statement and as Warsh spoke, Wolf Street and Admiral Markets reported. Higher yields raise borrowing costs for mortgages and companies.

Traders now see about an 85% chance of a quarter-point hike in December, according to Bloomberg futures data cited by Yahoo Finance. Before the decision, CME FedWatch put the odds at 78%, Fortune reported.

“I think the probability of a hike in December is very, very high,” Laura Ullrich of the Indeed Hiring Lab told Fortune.

What’s next

The Fed meets next on 8 and 9 December. That meeting comes with officials’ quarterly forecasts, including the “dot plot” of where each expects rates to go, which Wednesday’s meeting did not have.

Until then, the fight Warsh described is in the open. Two of 12 voters want higher rates now, and the statement leaves the next step to the data.