- The Federal Reserve held rates at 3.75%-4% in a 10-2 vote.
- Markets expect a quarter-point hike in December and further tightening into mid-2027.
- Chair Kevin Warsh announced fewer annual rate decisions: seven in 2027, six in 2028.
- Two-year yields slipped to 4.7% while the 10-year yield stayed above 5%.
The Federal Reserve held its target interest rate steady at 3.75% to 4% on Wednesday, while Chair Kevin Warsh announced a structural shift in how often the central bank decides rates. The FOMC approved the move by a 10-2 vote amid elevated inflation and a resilient job market.
The decision comes as the Fed pivots its attention to inflation amid energy price fluctuations from the conflict in Iran. However, financial markets are heavily pricing in a quarter-point rate hike in December, anticipating further monetary tightening into mid-2027.
Governors Lisa D. Cook and Beth M. Hammack preferred to raise the target range by a quarter percentage point at this meeting. “Inflation remains elevated,” the Fed’s statement said.
“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 statement continued. Meanwhile, Warsh, who assumed the chairmanship in May, said spacing out policy decisions allows more economic data to accumulate while giving policymakers dedicated time for structural issues.
Under the revamped framework, the FOMC will issue rate decisions at seven of eight sessions in 2027, with one meeting reserved for strategic review. By 2028, rate-setting votes will drop to six per year.
Consequently, two-year Treasury yields initially rose five basis points before dropping four basis points to 4.7%, as traders interpreted the schedule change as a dovish signal. The 10-year yield remained elevated above 5%.
Equities moved higher, with the S&P 500 up 0.2%, Nasdaq 100 up 0.3%, and Dow Industrials up 0.2%. The SPDR S&P 500 ETF (SPY) gained 0.2%, while the Invesco QQQ Trust (QQQ) added 0.3%.
Retail sentiment around SPY on Stocktwits shifted from bearish to neutral.
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