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US Fed holds rates at 3.75-4.00% in 10-2 vote, two members wanted a hike; December increase seen likely
The US Federal Reserve held its rate at 3.75% to 4% on Wednesday in a 10-2 vote, with two members preferring a quarter-point hike. The statement upgraded growth to strong. Futures show about an 85% chance of a December hike, and the 10-year Treasury yield rose above 5%.
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The US Federal Reserve left its benchmark interest rate unchanged at 3.75 per cent to 4 per cent on Wednesday, 28 October, in a 10-2 vote. The two members who dissented, Governor Lisa Cook and Cleveland Fed President Beth Hammack, would have preferred a quarter-point increase. The decision was expected, but the split vote and the changes in the wording of the statement have strengthened the market's view that the central bank will raise rates again in December.
The decision
The Fed raised rates by a quarter of a point in September, its first increase since July 2023, and that vote had been unanimous at 12-0. This time the committee held, and Chair Kevin Warsh said at his press conference that politics played no role in the decision. Before the meeting, the CME FedWatch tool had shown less than a 10 per cent chance of a hike at this meeting.
What changed in the statement
The committee upgraded its description of economic growth from solid to strong, and said that economic activity is expanding at a strong pace. It replaced a line that tied policy action to a return to 2 per cent inflation with wording that more information will help it set the stance of policy. It also changed timelier to timely in describing the return to its 2 per cent goal, which analysts read as a sign of less urgency about the timing. Inflation was described as still elevated, and recent data have come in hotter than expected, with wholesale prices rising in September.
What Warsh said
At the press conference Warsh said that the monetary medicine is starting to work some, but that there are no firm conclusions. He said that he is unwilling and unable to call financial conditions tight despite the September increase. On the question of whether higher rates will limit spending on artificial intelligence, he said that interest rates get in the cracks. He declined to respond to President Donald Trump's criticism that rates should be lower.
Stocks were muted before the decision, and then moved up and down. They dipped after the statement, rose during the press conference and gave back much of the gain. The benchmark ten-year Treasury yield rose above 5 per cent, to about 5.04 per cent, and the thirty-year yield was about 5.33 per cent. The dollar slipped against the euro during the press conference. Gold futures were around 4,066.70 dollars an ounce, up about 0.37 per cent, and US crude futures were near 101.85 dollars a barrel.
| Measure | Level |
|---|---|
| Fed funds target range | 3.75% to 4.00% |
| 10-year Treasury yield | about 5.04% |
| 30-year Treasury yield | about 5.33% |
| Gold futures | about 4,066.70 dollars |
| US crude futures | about 101.85 dollars |
The stock market had fallen on each of the last six days on which the Fed announced a decision, and a lower close on Wednesday would have tied a record of seven set in 2018. Traders were reported to be watching whether chip stocks, which led the gains during the press conference, could hold them.
Futures data show about an 85 per cent chance of a quarter-point hike at the next meeting on 9 December, and traders expect the rate to rise from about 3.9 per cent to nearly 4.7 per cent by September 2027, which would mean about three more quarter-point increases. The Fed's own projections indicate a second hike in 2026. The Fed also announced that from 2027 one of its eight meetings a year will be devoted to strategy, with no rate vote or policy statement, and that in 2028 there will be two strategy meetings and six policy meetings.
Higher US interest rates and a ten-year yield above 5 per cent make dollar assets more attractive, which tends to draw money away from emerging markets and to put pressure on their currencies. The rupee closed at 95.23 against the dollar on Wednesday, before the decision, and Brent crude was above 115 dollars. A stronger dollar and costly oil together raise the cost of imports and can feed into inflation.
The Reserve Bank of India sets its own policy, and its next decision will take the Fed's moves and the rupee into account. Indian investors holding gold, which pays no interest, will watch whether higher US yields weigh on its price, although gold held up on the day. The effect on India depends on how the Fed's path compares with what the markets already expect.
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