The Federal Reserve held interest rates steady on Wednesday, keeping its target range at 3.75 to 4 percent, and Chair Kevin Warsh used his press conference to deliver a simple message: inflation is still too high, and the Fed's job is to stop it broadening out. The committee voted 10 to 2 to hold, said it would gather more information before deciding its next move — and on Thursday morning the government's advance estimate confirmed the growth half of his account, showing the economy expanded at a 3.4 percent annual rate in the third quarter.
The decision itself was a pause, not a turn. In its statement, the Federal Open Market Committee said economic activity is expanding at a "strong" pace — an upgrade from its previous description — with domestic spending resilient, productivity growth strong, capital investment robust, and job gains keeping pace with the workforce. Against that strength, it said plainly: "Inflation remains elevated." It 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," and closed with a commitment: "The Committee will deliver price stability."
Two members wanted to go further, faster. Governor Lisa D. Cook and Cleveland Fed President Beth M. Hammack voted against the hold, preferring to raise the target range by another quarter of a percentage point at this meeting. Their dissent underlines the direction of the argument inside the building: nobody on the committee is arguing for easier policy while inflation runs above target — the disagreement is only about how quickly to tighten further after September's quarter-point increase, the first hike of this cycle.
Warsh left no doubt where he stands. "Inflation is too high," he said. "Our job is to make sure inflation doesn't broaden out." He vowed the central bank "will deliver price stability, no ifs ands or buts," while saying he is encouraged by the progress made so far. Asked why the committee did not hike on Wednesday, he pointed to the medicine already taken: inflation expectations have moved the right way, he feels good about the signposts, and the broad view on the committee is that September's increase has, in his words, "worked some." The weeks ahead are "information rich," he added — and that information will decide what happens next.
Warsh was candid about the squeeze in credit markets. Overall financial conditions are tighter than they were, he said, but added: "I'm unwilling and unable to call them tight." Credit conditions, he acknowledged, have tightened for some households and businesses. Energy and related prices have moved higher again in recent weeks — one reason to stay ready. "We have shown our readiness to act," he said. On the economy, he described consumer spending as healthy, business investment as rising at about a double-digit pace, and employment conditions as positive.
Thursday morning's figures backed him. The Bureau of Economic Analysis put third-quarter growth at 3.4 percent at an annual rate in its advance estimate, up from 2.2 percent in the second quarter and above the 3.2 percent economists had expected — the strongest pace in about a year, and squarely the "likely above 3 percent" outcome Warsh had flagged. Consumer spending rose 3.8 percent, matching the prior quarter, while investment was the largest contributor, led by business equipment including computers; government spending added support, and trade dragged as exports fell and imports rose. Underlying private domestic demand rose 4.9 percent, stronger than the quarter before.
The same release carried the other half of the story, and it cut both ways. Measured across the quarter, price pressures cooled sharply: the PCE price index — the Fed's preferred gauge — rose at a 2.1 percent annual rate in the third quarter, down from 5.0 percent in the second, and the core index, excluding food and energy, rose 2.5 percent, down from 3.3 percent. But September's monthly figures showed inflation still running hot on a yearly basis: headline PCE prices were up 3.6 percent from a year earlier, and core prices were up 3.1 percent. That is precisely the tension Warsh described — progress within the quarter, but prices still rising too fast for comfort. Households feel it: the personal saving rate slipped to 3.8 percent, its lowest since October 2022.
Markets heard a central bank in no hurry to declare victory. Stocks rose modestly while Warsh spoke, the dollar eased, and market pricing put the chance of another quarter-point hike in December at more than 80 percent. Phil Camporeale, chief investment strategist at J.P. Morgan Wealth Management, said the vote showed the Fed choosing "to keep rates on hold and wait for more information," and expects conditions to be met for a December hike given the economy's strength. Mike Fratantoni, chief economist at the Mortgage Bankers Association, called the two dissents a "hawkish tilt" and warned that higher oil prices from renewed fighting in the Middle East could push inflation up further. The bond market has already done part of the work: the 10-year Treasury yield peaked at 5.31 percent in early October before easing back just below 5 percent.
For ordinary households, the honest summary is this: Wednesday's hold removes the immediate risk of another jump in short-term borrowing costs, but it does not make borrowing cheaper. Credit cards and home equity lines remain expensive, with the prime rate at 7 percent, and mortgage rates follow Treasury yields and inflation expectations rather than the Fed's rate alone. Fratantoni was blunt about housing: "Mortgage rates now at three-year highs are causing a sharp slowdown in home sales, mortgage originations and in commercial real estate markets," and his association does not expect "any significant relief in mortgage rates over the forecast horizon." Savers, on the other side, keep earning elevated yields on savings accounts, money market funds and CDs for as long as rates stay up. The benefit the Fed says it is working to deliver is the one Warsh put in plain words — price stability: an end to prices rising faster than paychecks, without breaking the growth the statement called strong.
What happens next is deliberately unsettled. Warsh refuses to prejudge meetings — "It's a new chapter at the Fed," he said earlier this month, "we're not in that business anymore" — and the December 9 decision, which comes with new economic projections, will turn on the inflation and jobs data arriving between now and then. He also announced a calendar change: in 2027 one of the Fed's eight meetings will be set aside for strategy with no rate vote, and two will be in 2028. "We believe eight meetings per year is the right number," he said. For now, the position is the one he stated on Wednesday: inflation is too high, growth is strong, the medicine is working some — and more information will decide the next policy move.
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