Fed holds its rate as two voters back a quarter-point increase

The Federal Reserve's policy committee kept the federal funds target range at 3.75 to 4 per cent on 28 October, voting 10 to 2, with Lisa D. Cook and Beth M. Hammack preferring a quarter-point increase, the Fed said.

The decision followed the quarter-point increase of September, which the committee took 12 to 0, the minutes of that meeting show. The minutes said most participants judged another increase by year-end would likely be appropriate; our analysis of the minutes set out what that meant for central banks in the region, and the Week Ahead listed this meeting among the week's decisions. Kuwait's central bank held its discount rate on the day of the September increase.

The statement describes economic activity as expanding at a strong pace and says domestic spending has held up despite elevated uncertainty, partly tied to geopolitical developments. It adds that productivity growth and capital investment are strong, that job gains have kept pace with labour-force growth and that the unemployment rate has changed little. On prices it says "inflation remains elevated" and that further information will help the committee set the stance needed to return inflation to its 2 per cent goal in a timely way. It also says the committee will deliver price stability, the same sentence the September statement carried, according to the minutes.

The statement does not say whether another increase is planned. The two dissenting votes are the only statement of a preference for one: Cook and Hammack, the statement said, preferred to raise the target range by a quarter of a percentage point at this meeting. In September the committee had been unanimous.

The October statement gives no inflation figure. The minutes of the September meeting recorded staff estimates of 12-month total inflation, measured by personal consumption expenditures, of 3.8 per cent in August, and of 3.4 per cent for the core measure.

The Fed's implementation note for the decision keeps the interest rate on reserve balances at 3.90 per cent, a rate the Board of Governors maintained unanimously, effective 29 October. The overnight reverse repurchase offering rate stays at 3.75 per cent, with a limit of $160 billion per counterparty per day, and the discount rate for primary credit stays at 4 per cent. None of the three changed.

At the press conference, Chairman Warsh said "inflation is too high" and pointed to energy prices that "have moved higher again in recent weeks", as the preliminary transcript shows. Asked about the inflation target, he said "there's no soft inflation target." He said the period ahead "is information rich" and that the committee expects more clarity on the appropriate stance.

Asked about guidance, he said: "I don't believe in forward guidance absent exigent circumstances, absent a crisis." He declined to share his "musings" on what happens when the committee meets again "six weeks from now". On the balance sheet, he said it sits "solely within the four walls of the Balance Sheet Task Force" and that a future change is "unlikely to have any material effect on this policy conjuncture."

The range did not move, the administered rates did not move, and the committee gave no path. What changed is the vote: no member dissented in September, and in October two did, both in favour of a higher range. Among regional central banks, Hungary's Monetary Council held its base rate on 20 October, before this vote.