Fed holds rates after September's increase, with two officials voting to raise again

The Federal Reserve left its target range for the federal funds rate at 3.75%-4.00% on Wednesday, pausing after September's quarter-point increase, but two of the 12 officials who voted wanted another increase, the Fed said.

What happened

The Federal Open Market Committee (FOMC) approved its statement by a 10-2 vote, released at 2:00 p.m. ET. Governor Lisa D. Cook and Beth M. Hammack of the Cleveland Fed "preferred to raise the target range for the federal funds rate by 1/4 percentage point at this meeting," the statement said. The September statement had been approved 12-0.

The text changed in two places from September. The Committee now describes economic activity as "expanding at a strong pace"; in September it said "solid pace." The sentence that tied the September increase to inflation ("Today's policy action will support a timelier return to the Committee's 2 percent goal") is gone. In its place the Committee wrote: "The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee's 2 percent goal."

Much of the statement is unchanged. The Committee said that "inflation remains elevated," that "job gains have kept pace with the workforce" and that "the unemployment rate has changed little." It repeated the line "The Committee will deliver price stability."

In an implementation note, the Board of Governors voted unanimously to keep the interest rate paid on reserve balances at 3.90%, effective October 29. The Committee also directed standing overnight repurchase agreement operations at 4.0% and reverse repurchase operations at 3.75%.

Why it matters

The pause follows the September increase of 1/4 percentage point, which raised the range to 3.75%-4.00% from 3.50%-3.75% (computed from the September statement). The minutes of that meeting, released on October 7, said that "most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end."

The data released since then show faster consumer prices and slow hiring. The Bureau of Labor Statistics (BLS) said consumer prices rose 0.6% in September on a seasonally adjusted basis. The all-items index rose 3.7% over the 12 months through September, compared with 3.4% through August, and the index excluding food and energy rose 2.6% over the year, after 2.4%.

The BLS also reported in its employment report that nonfarm payrolls rose by 29,000 in September and that the unemployment rate was 4.2%, within a range of 4.1% to 4.3% since March.

The statement does not give reasons for the two dissents. It shows that two members preferred to raise the range at this meeting, while the other ten voted for the statement, which keeps the range where it was set in September.

What to watch

The BLS is scheduled to publish the October employment report on November 6 and October consumer prices on November 10, both at 8:30 a.m. ET, according to its release schedules for employment and consumer prices.

The Committee's next meeting is on December 8-9, and it is one of the meetings that comes with a Summary of Economic Projections, according to the Fed's calendar. If annual consumer price inflation stays near the 3.7% of September, the case the two dissenters made in October would still be on the table. If it eases, the statement's wording about waiting for more information would carry more weight. Both outcomes depend on data not yet released.