The Federal Reserve voted to keep its benchmark interest rate unchanged early Wednesday Beijing time, choosing patience in its fight against inflation even as growing evidence suggests price pressures are more stubborn than policymakers had hoped.
In a widely anticipated decision, the Federal Open Market Committee left the overnight federal funds rate in the 3.75% to 4% range, where it has sat since the central bank approved a 25-basis-point hike in September.
"Inflation remains elevated," the post-meeting statement said. "Gathering additional information will help the Committee determine the appropriate policy stance to ensure inflation returns to the Committee's 2% goal in a timely manner. The Committee will achieve price stability."
Fed to cut rate-setting meetings
Fed Chairman Kevin Warsh said the central bank will reduce the number of meetings at which members vote on interest rates.
"We believe eight meetings a year is the appropriate number for the FOMC, but in 2027, one meeting will be devoted exclusively to broad monetary policy strategy, with no expected vote on the federal funds rate and no policy statement. The rest will be regular FOMC policy-setting meetings, and I expect that in 2028 we will have two meetings devoted to strategy and six for setting policy," Warsh said.
Warsh later added that he "does not expect" policy decisions to be made at those strategy meetings.
Two voting members dissent
Two of the 12 FOMC voting members dissented from the decision 鈥?Governor Lisa Cook and Cleveland Fed President Beth Hammack, both of whom wanted the committee to raise rates by 25 basis points.
Cook has been at the center of a continuing controversy, with President Donald Trump seeking to remove her over allegations about information she provided in mortgage applications. While the Supreme Court blocked the president's attempt, the administration has revived the effort, with a hearing scheduled for early November.
This was Cook's first dissent since she joined the Fed in 2022 as an appointee of former President Biden.
Dallas Fed President Lorie Logan and Minneapolis Fed President Neel Kashkari voted against the majority at the previous committee meeting in July along with Hammack, and both had expressed the need for higher rates. On Wednesday, however, they joined the majority.
The Fed chairman spoke and took questions after the meeting.
Warsh says financial conditions have tightened since September hike
Fed Chairman Kevin Warsh said there are signs that financial conditions have tightened since the central bank's September decision to raise rates by 25 basis points.
"We are beginning to see some changes in financial and credit conditions; for certain businesses and households, they have tightened, as we expected," he said. "Market participants are becoming more selective in capital allocation."
He added, however, that he would not broadly describe financial conditions as "tight," saying instead that they are helping to create a path toward price stability.
Warsh says price stability mandate is the focus, employment has been 'quite positive'
Warsh said the Fed's discussions in recent days "focused primarily on the price stability side of our mandate." He said the full-employment side of its dual mandate has been "quite positive," noting that the unemployment rate has fallen from a year ago.
Warsh also noted that, on a four-week average basis, unemployment insurance claims are at their "lowest level in generations."
Warsh says economic growth has strengthened
Fed Chairman Kevin Warsh said economic growth has been positive after the institution's October meeting kept rates in the 3.75% to 4% range.
"Economic growth has strengthened. GDP growth in the first half of this year was revised up to 2.4% from an earlier estimate of 1.8%, and the third quarter appears to have delivered faster growth," Warsh said.
Warsh does not expect rate decisions or statements at broad policy meetings
Warsh said he does not expect the Fed to make interest rate decisions or issue statements at policy meetings devoted exclusively to broad strategy. He later said what the Fed will share after those meetings "is not yet obvious."
"There will be more news on this," Warsh said. "The decision on the new meeting format is relatively new." Warsh said that over several meetings there were "lively discussions" about how to handle those meetings.
Warsh says proximity to midterm elections did not influence Fed decision
Fed Chairman Kevin Warsh said politics did not influence Wednesday's decision to keep rates unchanged.
"I just spent two days upstairs with colleagues. I did not hear a single word about politics. I did not hear any mention of politics, elections, or what will happen in the next week or so," Warsh said. The midterm elections are scheduled for November 3.
"I heard nothing at all about any of that, and I do not think it played any role in the decision, not just for me but also for the colleagues in the room," he said.
Warsh says meeting schedule change will give Fed time to think about 'big questions'
The public will hear less from the Fed about interest rate decisions.
Warsh announced Wednesday that the central bank will change its meeting schedule in the coming years, seemingly part of his plan to reduce the imprint he and his colleagues leave on financial markets.
Under the details Warsh released, the Federal Open Market Committee will still meet eight times a year. However, unlike the current system in which the panel votes on where to set the benchmark rate, one meeting in 2027 will focus only on strategy. In 2028, there will be two strategy meetings.
"We believe eight meetings a year is the appropriate number for the FOMC," Warsh said, but noted that the committee does not need to vote every time.
"What is the rationale behind this change? To me it is fairly straightforward," he added. "Getting policy right requires assessing recent developments at timely, regular, information-rich intervals."
"But it is equally important that, as an intellectually diverse group, we set aside time and space for strategic deliberation, to rethink the big questions and look across longer time horizons, as I said, focusing on the left side of the decimal point."
Warsh has consistently emphasized the importance of institutional change at the Fed, a process that includes setting up multiple working groups to study how the central bank operates. One of those working groups will deal with communication. The meeting changes appear to be the first step in the process of changing how the Fed does business.
"I think setting the meeting schedule and agenda is not merely some administrative detail. It is an institutional choice that affects the nature and quality of our deliberations and ultimately the wisdom of our decisions," he said. "This is another change that puts the conduct of monetary policy on the right track."
Warsh on rates' impact on AI buildout: 'Rates have already had an effect'
Warsh said higher rates have already had an impact on artificial intelligence infrastructure construction.
"Rates have already had an effect," Warsh said. "You see market participants distinguishing among the kinds of investments they want to make. You have seen credit spreads widen and gaps appear for certain assets. For other assets, you have seen financial conditions tighten somewhat, but not significantly."
"I do not think they are disconnected in some way from the rest of the economy," he added.
To be sure, Warsh said the capital expenditure story is "not only strong but expanding." He said that, compared with a few quarters ago, it is now "much harder" to argue that economic strength is driven by just a handful of industries.
Warsh again tells markets he does not support 'forward guidance'
Fed Chairman Kevin Warsh reiterated at Wednesday's press conference that he does not support the Fed signaling the future path of interest rates and monetary policy through the process commonly known as "forward guidance."
"Unless there is an emergency, unless there is a crisis, I do not believe in forward guidance," Warsh told reporters after the Fed kept the benchmark federal funds rate unchanged at 3.75% to 4.00%. "I have to add that caveat because, in the darkest days of the 2008 financial crisis, partly with the help of some literature and ideas from a very recent Nobel laureate, that kind of forward guidance was actually quite helpful. But in normal, ordinary times, especially when the underlying economy is this strong, I do not believe in it. I do not support it."
Fed Chairman Warsh said the central bank will reduce the number of rate-setting meetings in the coming years.
Fed Chairman Kevin Warsh announced that the central bank will begin reducing the number of rate-setting meetings starting in 2027, noting that while eight meetings a year is the "appropriate number" for the FOMC, beginning in 2027 one of those meetings will be devoted exclusively to broad monetary policy strategy. The remaining meetings will be policy-setting meetings.
Warsh said that in 2028, the Fed plans to hold two meetings focused on strategic discussion, with the other six centered on policy-setting.
Market reaction
The three major U.S. stock indexes closed higher, with the S&P 500, Dow and Nasdaq all posting three straight gains. The S&P 500 rose 0.28% to 7,743.98, the Nasdaq gained 0.27% to 26,549.85, and the Dow added 97.53 points, or 0.19%, to close at 52,475.10.
Chip stocks advanced Wednesday, lifted by SK Hynix reporting record quarterly profit 鈥?a development that sent the South Korean chipmaker's U.S. shares up 13%. Micron Technology rose 4%, and Arm Holdings gained 3%. Marvell Technology rose more than 2%, while Advanced Micro Devices gained about 2%.
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