Key Highlights

● The Fed held rates steady on October 28 in a 10 to 2 vote.

● Lisa Cook and Beth Hammack dissented in favor of raising rates.

● The statement upgraded activity to expanding at a strong pace from solid.

● Third-quarter GDP beat forecasts and September PCE Inflation ran hot.

The Federal Reserve kept interest rates on hold on Wednesday, but a pair of dissents in favor of tightening and an upbeat read on the economy left markets bracing for another hike before year-end.

A pause, not a pivot

The Federal Reserve held its benchmark federal funds rate steady on Wednesday, October 28, following a rate hike at its September meeting, according to media reports. The decision came at 2 p.m. ET, and Chair Kevin Warsh took questions at a 2:30 p.m. press conference.

The vote was 10 to 2. Two officials, Governor Lisa Cook and Cleveland Fed President Beth Hammack, dissented in favor of raising rates again, according to multiple media reports. Their votes showed that at least part of the committee favored further tightening.

Why hold at all

Warsh framed the pause as a chance to gather evidence. The policy statement added new language: "accumulating more information will help the Committee determine the appropriate stance of policy." One media report rendered the phrase slightly differently, as "accumulation of more information," but the message was the same. The Fed wants to see more data before moving again.

This was not one of the Fed's quarterly meetings that come with fresh economic projections, so policymakers did not publish an updated dot plot.

Why a hike is still on the table

The rest of the statement and Warsh's remarks leaned hawkish. The Fed upgraded its description of the economy, saying activity "is expanding at a strong pace," compared with "solid" previously. Warsh said labor market conditions are "quite positive," and that Americans are "still dealing with inflation that has been running above the committee's objective."

He was blunt about the priority: "It's our responsibility to get inflation down." He also said "there's no soft inflation target and no implicit inflation target," pushing back against any idea that the Fed might tolerate higher inflation.

The data agreed with the hawks

Thursday's numbers did little to soften that stance. The advance estimate showed third-quarter GDP accelerating from the second quarter and topping forecasts. September PCE inflation, the Fed's preferred gauge, ran hot, with energy and gasoline prices jumping amid a war-related oil squeeze. One Wealth advisor said, "Today's data strengthens the case for another rate increase in December."

Fed funds futures data showed traders leaning heavily toward a December hike, and those odds edged higher after the decision. One report, however, said expectations leaned toward a pause, a disagreement another source flagged.

Markets took it in stride

Stocks were mixed on Thursday, with the S&P 500 slipping 23.59 points to 7,720.39 mainly on Alphabet (NASDAQ:GOOGL)'s plunge, while the Russell 2000 rose. The 10-year Treasury Yield eased back from multi-decade highs. Gold fell to about $4,025 an ounce, according to market data, which tied the decline to stronger bets on Fed tightening. The same data said the dollar was "supported by expectations of restrictive Fed policy."

Europe moved in parallel. The European Central Bank also held on Thursday and said further tightening could be considered if inflation persists, according to market data.

What to watch

The Fed's next decision is due December 8 to 9. Before then, Friday's third-quarter Employment Cost index will offer a read on wage pressure, a key input for any inflation outlook. Warsh also said one of the Fed's eight 2027 meetings will focus on longer-term strategy with no rate vote. In the nearer term, the November 3 midterms and oil prices hovering above $100 a barrel add uncertainty to an already finely balanced debate.