October FOMC Recap—No Hike But Hawk Talk Persists

The Federal Reserve (Fed) held the fed funds target rate range steady at 3.75%–4.00%, pausing after September’s quarter-point increase while signaling that further tightening remains squarely on the table. While the decision was widely expected, today’s vote resulted in a 10-2 split, with Beth Hammack and Lisa Cook dissenting in favor of a 25-basis-point rate increase. Market participants were expecting two dissents from Hammack and Lorie Logan; however, Logan did not dissent, while Cook’s dissent was a surprise. The policy statement included new language declaring that “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.” While this indicated a current wait-and-see mode, markets largely expect the Fed to raise rates again in December.

Fed Chair Kevin Warsh’s post-meeting remarks acknowledged that economic activity is expanding at a strong pace as first-half GDP was revised up from 1.8% to 2.4% and third-quarter GDP will likely be above 3.0%. Employment conditions also remain very strong with the unemployment rate lower than it was a year ago and payroll growth above last year’s pace. However, Warsh also acknowledged that inflation is still too high and has been running above the Fed’s objective for close to six years. Warsh referenced that since the Federal Open Market Committee (FOMC) raised rates in September, the Committee has started to see some tightening in financial conditions. But Warsh also said: “While overall financial conditions are tighter, I’m unwilling and unable to call them tight.” This sentiment along with the two dissents underscores that today’s pause is most likely a skip, not a change of direction.

Warsh also announced a modification to the FOMC schedule starting next fall. The Committee will continue with eight meetings per year, but in 2027 one of those meetings will be dedicated entirely to broad monetary policy strategy, featuring no rate vote or policy statement. By 2028, this will evolve into two strategy-focused meetings and six policy-setting meetings per year. Warsh indicated that this shift is intended to provide more time for strategic deliberations on big-picture economic questions looking out over longer time horizons.

During the press conference, Warsh faced the difficult task of reconciling a hold with an inflation picture that has stopped improving. He has repeatedly said he wants out of the forward-guidance business and, true to form, he avoided committing to a specific meeting for the next move. But his tone made clear that the bar for declaring victory on inflation remains high and that the Committee is prepared to act again if the data warrant. For Warsh, the question is not whether policy is restrictive but whether it is restrictive enough.

In our view, several factors are keeping the Fed in a hawkish posture, including stronger growth, sticky core inflation, resilient labor-market data and upside risks from oil prices. But Warsh and other officials have also flagged the demand impulse from AI-related capital expenditures as a newer consideration. Together, these forces argue against any premature declaration that the tightening cycle is over.

We anticipate that inflation should continue to moderate over time, even if the path back to the Fed’s 2% target proves uneven and slower than the Committee would like. While the Fed is expected to deliver an additional rate hike in December, we don’t think rates need to go meaningfully higher than the path already reflected in the yield curve. Even if the Fed were to tighten once or twice more into early 2027, our view is that current pricing already offers a favorable backdrop for US fixed income, with starting yields compensating investors for the residual uncertainty. The message from today’s meeting is clear: This is a hawkish hold—the higher-for-longer ethos is alive and well.