Jordan Jackson
Global Market Strategist
Published:
The Fed did buy some time, but strong third-quarter growth and sticky inflation won’t buy much.
At its October meeting, the FOMC voted 10-2 to maintain the target Federal Funds rate range at 3.75–4.00%. The two dissenters were Cleveland Fed President Beth Hammack and somewhat surprisingly, Fed Governor Lisa Cook, both of whom favored a 25-bp rate increase.
Two items stood out in the statement: the growth language was upgraded from "solid" to "strong," and while inflation is still described as "elevated," the Committee added that "the accumulation of more information will help the committee determine the appropriate policy stance" to achieve its 2% inflation mandate. This added language could read as hawkish, but it also preserves optionality to hike in December—or hold.
Most notably, at the press conference, Chair Warsh outlined changes to the FOMC meeting calendar beginning next year. The Fed will continue meeting eight times annually; however, starting in 2027, one meeting each year will focus on broad monetary policy strategy, with no updates to economic projections or rate changes, while the remaining seven will be "live." In 2028, this shifts to six live meetings and two dedicated to strategy. It's unclear what materials, if any, will be publicized from the strategy sessions, but since no rate decisions occur there, they will likely draw far less attention. This marks the start of a new era of "forward silence" at the Fed, and further changes to Fed communications—particularly the Summary of Economic Projections and the dot plot—may follow.
Overall, there were few surprises at the October meeting. Warsh did acknowledge that financial conditions have tightened, suggesting recent market developments may reduce the need for aggressive future tightening next year. Altogether, upcoming jobs and inflation data will be key in determining whether the Fed hikes in December. Markets continue to assign a high probability that the Fed will raise rates in December, and again in March. For investors, with tighter policy already priced in, rates are likely to stay rangebound, while equities will likely be driven by fundamentals. The Fed did buy some time, but strong third-quarter growth and sticky inflation won’t buy much.