The Federal Reserve left its policy rate at 3.75%-4% on Wednesday while maintaining its commitment to bring inflation under control. Investors continued to anticipate tighter monetary policy, with market pricing pointing to a likely increase in December.
CME FedWatch put the probability of a December rate rise at 78%. Investors also expected the federal funds rate to reach at least 4.5%-4.75% within a year, although that longer-range assessment remains subject to substantial revision.
Persistent price pressures framed the decision. Higher energy costs associated with the U.S. war with Iran have complicated the central bank’s efforts to achieve price stability. The policy committee reiterated that inflation was still too high.
September consumer prices rose 3.7% compared with a year earlier, exceeding the annual increase recorded in the preceding month. The figures showed inflation gathering pace after the Fed’s September meeting, when policymakers approved their first rate increase in more than three years for a 25 basis point.
Wednesday’s outcome exposed divisions among policymakers. Lisa Cook and Beth Hammack supported a quarter-percentage-point increase rather than leaving borrowing costs unchanged. Cook had not previously dissented, while Hammack, known for her hawkish policy stance, had earlier opposed rate increases.
Neither policymaker provided an explanation for her position. Investors also lacked updated economic projections and the accompanying dot plot, leaving limited information about officials’ longer-term rate expectations.
The pause came with fewer than seven days remaining before the midterm election vote count. Attention now turns to December’s policy meeting, with market expectations favoring another increase despite the Fed’s decision to stand pat this week.
