Fed holds rates at 3.75%-4% with two dissents; 10-year yield rises to 5.03%

The Federal Reserve held its target range for the federal funds rate at 3.75% to 4% at the end of its October meeting on Wednesday. The calendar shows a rate decision of 4%, against a 4% estimate and a previous reading of 4%.

What happened

The decision was released at 18:00 UTC (2:00 p.m. in New York). The market widely anticipated it. It was the last Fed meeting before the Nov. 3 midterm elections.

Two members of the Federal Open Market Committee dissented. Governor Lisa Cook and Cleveland Fed President Beth Hammack voted against the decision. Both favored raising rates by a quarter percentage point.

The pause follows a quarter-point hike approved at the previous meeting. That move was the first increase in three years. Policymakers were divided over whether to continue, but a majority opted to wait.

The committee said the accumulation of more information will help it determine the policy stance appropriate to ensure a timely return of inflation to target. Inflation remains well above the Fed's 2% annual target.

In the bond market, the 10-year Treasury yield rose four basis points to 5.03%.

Why it matters

The split vote shows a committee that is not united. Two officials preferred another hike, even after the first increase in three years. A decision with two dissents in the same direction tells investors where the debate inside the Fed is leaning.

A pause gives policymakers more time to assess the effects of the last hike. It also lets them see whether the Nov. 3 election results affect the timeline for the war in Iran. That war is described as a major driver of this year's inflation, so the link between politics, energy and prices stays central to the rate outlook.

Bond markets reacted to the decision. The 10-year Treasury yield stands at 5.03% after a four basis point rise, a level that shows how far borrowing costs have moved this year. Higher yields raise financing costs for companies, governments and households alike.

Traders have already shifted their attention to the next meeting. According to the CME FedWatch tool, fed funds futures imply a roughly 85% likelihood of a rate hike in December. That pricing shows that markets read the pause as a delay and not as the end of the tightening cycle.

What to watch next

The FOMC statement is listed on the calendar for 18:00 UTC. Fed Chairman Kevin Warsh will then hold a press conference, scheduled for 2:30 p.m. ET, or 18:30 UTC. Both items are marked as scheduled on the economic calendar, and the pack carries no published figures for them.

Market participants will look to Warsh for an explanation of the two dissents. They will also look for his view of how the committee reads inflation and the effects of the last hike. His words on the pace of future decisions will shape how traders price the December meeting.

The Nov. 3 election is the next political marker. Officials and analysts will track whether its outcome changes the course of the Iran war, which is cited as a key inflation driver.

The December meeting is the next decision point for rates. Futures pricing shows traders leaning toward a hike, though pricing can change as new data arrives. The committee has said it wants more information before it sets its stance, and that information will include the inflation path and the reaction of the Treasury market, where the 10-year yield now sits at 5.03%.