The Fed held its target range at 3.75% to 4% on October 28, 2026. The vote was 10 to 2. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented. Both wanted a second quarter-point hike on top of the September hike. It was Cook's first dissent since she joined the Board in 2022.
Does the Fed have a strategy? Not one its members agree on. I think the Fed should have hiked. Its own statement reads like the case for one.
What did the Fed change?
Very little. Two changes to the September statement matter.
The Fed upgraded growth from “solid” to “strong”. The statement now opens: “Economic activity is expanding at a strong pace.”
It also dropped the action. In September, the statement said: “Today's policy action will support a timelier return to the Committee's 2 percent goal.” In October, it says: “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.”
The rest stayed word for word. “Inflation remains elevated.” Job gains “have kept pace with the workforce”. “The Committee will deliver price stability.”
So the Fed upgraded growth, kept inflation “elevated” and chose to wait for more information.
What did the data say?
Much of the information it wanted arrived the next morning (i.e. today).
GDP grew at an annualised 3.4% in the third quarter, up from 2.2% in the second. Final sales to private domestic buyers grew 4.9%.
The PCE price index, the inflation measure behind the Fed's 2% target, rose 0.5% in September. It is up 3.6% on a year ago. Core PCE, which leaves out food and energy, is up 3.1%. It has been at or above 3% every month since March.
The Consumer Price Index, out two weeks ago, told the same story. CPI rose 0.6% in September, 3.7% on a year ago. Gasoline rose 9.1% in the month. Core CPI rose 0.3%.
The labour market is steady, not weak. Payrolls rose 29,000 in September, though lower than estimated. The unemployment rate was 4.2%. It has stayed between 4.1% and 4.3% since March. This range is near the historical lows. Average hourly earnings are up 3.0% from a year ago.
Growth is strong. Jobs are steady. Inflation is 3.6%. Every part of the Fed's mandate has given them permission to hike this week.
Has the market done the hiking for the Fed?
This is Kevin Warsh's case for waiting. “Since our policy action in September, we have started to see some changes in financial and credit conditions,” he said. Conditions had tightened “for some businesses and households, much as we would expect.”
The long end has done some of the work. The 10-year Treasury yield rose from 4.18% at the end of 2025 to 4.99% on October 27. Most of that rise came from the real yield, the return after inflation (priced off inflation-protected Treasuries, TIPS). It rose from 1.93% to 2.64%.
Breakeven inflation is the gap between the two. It shows the inflation rate the bond market expects. It moved from 2.25% to 2.35%. Inflation expectations held, while real borrowing costs rose. That is tighter money without a Fed move.
But the timing works against his argument. The 10-year yield was 5.00% the day before the September hike. It peaked at 5.31% on October 5. By the meeting, it was back at 4.99%. Since the September hike, the 10-year yield has risen and then fallen back.
Warsh said it himself: “While overall financial conditions are tighter, I'm unwilling and unable to call them tight.” With inflation at 3.6%, yields have not done the Fed's job for it.
Why wait for December?
The Fed's answer is more information. Before the December 8–9 meeting, it gets the October jobs report on November 6, October CPI on November 10 and October PCE on November 25.
That is one more month of inflation data. However, with PCE inflation at 3.6% and core PCE at or above 3% every month since March, one month is unlikely to change the case for further hikes.
The midterm elections also fall in between, on November 3. Warsh said politics played no role in the decision. Still, the hold pushes the next hike past the vote. The timing makes me wonder.
Two members did not want to wait. Cook and Hammack voted to hike now.
Does the Fed have a strategy?
Not one its members agree on.
Warsh also changed the meeting calendar. The Fed keeps eight meetings a year. In 2027, “one meeting will focus exclusively on broad monetary policy strategy, with neither a vote on the federal funds rate nor a policy statement anticipated.” In 2028, two meetings will. That leaves seven policy meetings next year and six the year after.
Read next to a 10 to 2 vote, it tells me the Fed has no consensus on how to bring inflation back to 2%. To the extent they need to carve out specific time for creating that consensus.
The communication (or rather, the lack of it) supports my view. Warsh does not give forward guidance. The statement offers no dates and no thresholds. The press conference gave little on what data the Fed wants to see. For the market, there is now less transparency on what the Fed thinks. That does not help public confidence in a Fed that has missed its target for years.
Is this a market-led Fed?
There may be a logic to the silence. Without guidance, the market has to price policy from its own reading of the data. The Fed can then treat that pricing as an independent signal, rather than an echo of its own words, or as some people have called it, “a hall of mirrors”.
The market has done exactly that. Fed funds futures settle on the average Fed funds rate in each month, so their prices show the path the market expects.
Today (October 29, 2026), the December contract implied an average rate of 4.03%, against 3.885% for November. That prices in about an 80% chance of a 25bp hike on December 9. The curve then climbs to about 4.5% by autumn 2027. That is about two and a half more hikes from here.
The 2-year Treasury yield, at 4.70%, sits 0.82% above the effective Fed funds rate of 3.88%.
What should the Fed have done?
Hike in October. I’ve advocated this view since the CPI data release. Growth, jobs and inflation all supported it. Two members voted for it.
A hike would also have kept December open. If the next data came in softer, the Fed could pause in December, with policy already tighter. If the data came in strong, it could hike again, a clear signal that it means to anchor inflation expectations.
By waiting, the Fed has narrowed December to one choice. The market prices a hike at about 80%. Skipping it would lose credibility.
The Fed upgraded growth, kept inflation “elevated” and asked for more time. Without an agreed strategy, more data will not settle the argument inside the Fed.
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