Fed holds rates steady at 3.75%-4.00% as inflation hits 3.7%, setting stage for December hike

Key points

• The Federal Open Market Committee voted 10-2 to keep the federal funds rate unchanged at 3.75%-4.00%, with Cleveland Fed President Beth Hammack and Governor Lisa Cook dissenting in favor of a 25-basis-point hike.
• Consumer price inflation accelerated from 3.4% in August to 3.7% in September, driven largely by soaring energy costs related to the Iran conflict, though the Fed’s preferred PCE gauge is expected to match this figure.
• Chair Kevin Warsh stated that politics played no role in the decision, emphasizing that the central bank needs more information to ensure a 'timely return' to the 2% inflation target, while acknowledging that real economic activity is expanding strongly.
• Warsh announced a structural change to the FOMC schedule, reducing rate-setting votes from eight to seven in 2027 and by two in 2028, to allow more time for strategic policy discussions and improve decision quality.
• Markets now price an 82.6% probability of a rate hike at the December 8-9 meeting, up from 78.3% prior to the decision, as investors anticipate further tightening to combat persistent inflation.

Background

The Fed had previously raised rates in September 2026, marking the first increase since July 2023. Recent data shows the US economy expanded at a 3.4% annualized rate in Q3 2026, driven by consumer spending and AI investment, even as inflation remained above the 2% target. Prior to this meeting, markets had priced only a 9% chance of an October hike, reflecting expectations that the central bank would pause to assess the September move and navigate the upcoming midterm elections.

How outlets are covering it

NBC News highlights the political tension, noting that the decision occurred just before the midterm elections and that President Trump has attempted to fire dissenting Governor Lisa Cook. CNN argues the Fed may be repeating a 2021 error by ignoring inflation, warning that energy shocks could spill over into broader economic costs and force a more aggressive hike in December. Fox Business focuses on the technical aspects, noting that while the labor market is strong, financial conditions have tightened, and experts like Goldman Sachs expect the Fed to resume hikes in December to 'take out insurance' against rising prices. While all outlets agree on the vote outcome, they differ on the risk assessment: CNN emphasizes the danger of inaction, while Fox Business notes the Fed’s desire to avoid shocking markets with a surprise hike.

Why it matters

The decision impacts borrowing costs for consumers and businesses, with higher rates potentially slowing the strong economic growth seen in Q3. The Fed’s shift to fewer meetings signals a move toward more deliberate, long-term policy planning, which could affect market volatility and investor confidence. As inflation remains above the 2% target, the outcome of the December meeting will be critical in determining whether the central bank can curb price increases without triggering a recession.

What to watch

The Federal Reserve will release its preferred PCE inflation gauge on October 29, expected to show 3.7%. The next rate-setting meeting is scheduled for December 8-9, where markets anticipate a 25-basis-point hike. The central bank will also begin implementing its new meeting schedule in 2027, with one meeting dedicated exclusively to strategic policy discussions.