US Federal Reserve leaves benchmark rate near 3.9% as inflation stays above target

Key facts

• The United States Federal Reserve held its key rate unchanged at about 3.9 per cent at its October 2026 meeting, saying inflation remains elevated above its 2 per cent target and that holding off allows accumulation of more information for policy.
• The Fed had raised its benchmark rate in September 2026 for the first time in three years, defying President Donald Trump's demands for rate cuts, to return inflation to the 2 per cent target.
• Two officials dissented in favour of a quarter-point hike: Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack; it was Cook's first dissent since her 2022 appointment.
• President Donald Trump renewed his attempt to remove Fed Governor Lisa Cook last month by setting up a committee to investigate allegations she committed mortgage fraud, which she denies; the Supreme Court in June ruled she could keep her job while litigation played out.
• The Fed's decision came just six days before a US midterm election focused heavily on cost-of-living and affordability concerns.
• The average 30-year mortgage rate reached a three-year high of 7.4 per cent earlier in October 2026, making home purchases unaffordable for 5 million more Americans since the start of the year, according to Oxford Economics.
• US consumer price inflation rose 3.7 per cent in September 2026 from a year earlier, up from 2.4 per cent in February, with monthly CPI increases of 0.3 per cent in both August and September.
• The Personal Consumption Expenditures price index was forecast to rise 3.6 per cent in September year-on-year, up from 3.4 per cent in August, with core prices forecast at 3.1 per cent, up from 3 per cent.
• US unemployment remains low at 4.2 per cent, and July-September quarter GDP growth is forecast at 3 per cent by FactSet, up from 2.2 per cent in the April-June quarter.
• Wall Street closed slightly higher on October 28 after the widely expected rate pause: the S&P 500 and Nasdaq each rose about 0.3 per cent and the Dow Jones gained about 0.2 per cent.
• Fed Chairman Kevin Warsh said politics played no role in the central bank's decision to leave rates untouched.
• The Federal Open Market Committee (FOMC) announced that in 2027 it will hold eight meetings but dedicate one to broad monetary policy strategy, meaning one fewer rate decision, and in 2028 it plans two strategy meetings and six policy meetings.
• Before the decision, 90.6 per cent of traders bet on an October pause and 75 per cent predicted a quarter-point hike in December (CME FedWatch); of 100 economists polled by Reuters, 94 expected no change this month and all predicted a December hike.
• The FOMC's final meeting of 2026 is scheduled for December 9-10.
• US employers added 29,000 jobs in September while unemployment ticked up to 4.2 per cent from 4.1 per cent, and initial jobless claims fell to 194,000 for the week ending October 17, the lowest since the week of July 18.
• In September projections, of 18 FOMC participants, 12 expected one additional quarter-point hike by end-2026, four expected two quarter-point hikes or a half-point hike, and two expected no further hikes.
• The Dallas Fed's trimmed mean PCE inflation was up 2.2 per cent over the 12 months ending in August.