October 28, 2026 FOMC Meeting Analysis

Welcome. I’m Andrew Paolillo, director of member lending and strategies at Federal Home Loan Bank of Boston.

The Federal Reserve left interest rates unchanged at the October meeting, maintaining the federal funds target range at 3.75% to 4%.

The decision was widely expected, but the details of the statement and Chair Kevin Warsh’s comments suggest this should be viewed as a pause to gather information not a pivot toward easier monetary policy.

The vote was 10 to two, with the dissenters preferring to raise rates another 25 basis points.

The biggest change in the statement was the language surrounding the next policy decision.

In September, the FOMC said that its rate increase would “support a timelier return” to the Fed’s 2% inflation goal.

However, in October, that language was replaced with a more deliberately open-ended statement.

The Committee said that “the accumulation of more information will help” it determine the appropriate policy stance to ensure a timely return of inflation to 2%.

There was also a subtle upgrade in the Fed’s assessment of economic activity.

The Committee now says economic activity is expanding at a “strong pace,” compared with “solid pace” in September.

Domestic spending remains resilient, productivity growth is strong, capital investment is robust, and job gains have kept pace with the workforce.

In summary: the economy is holding up very well, the labor market is not deteriorating materially, and while inflation is going the right way, it remains elevated.

That combination gives policymakers room to wait, but it doesn’t give them a reason to declare victory yet. In the chairman’s words, “conditions are tighter, but they’re not tight”.

Notably, Warsh announced that, beginning in 2027, one of the Fed’s eight scheduled meetings will be devoted exclusively to broader monetary-policy strategy rather than setting the federal funds rate. He said the purpose is to give the Committee more time to think about longer-term issues (he characterized it as focusing on the left side of the decimal) rather than having every meeting dominated by the next rate decision.

Warsh continued to resist giving markets a specific December forecast. Instead, he emphasized that the Committee needs to see how the incoming information changes its assessment of the economy, inflation and financial conditions.

There are good reasons for the caution around the level of inflation. September CPI came in at 3.7% year over year, with core CPI at 2.6%. The Fed’s preferred PCE inflation measure is also expected to remain well above the 2% target when the September data is released.

At the same time, the economy remains surprisingly resilient, with strong capital investment and particularly strong investment associated with artificial intelligence. Warsh noted that productivity and demand was high for years even before the recent acceleration driven by AI.

The Fed didn’t raise the overnight rate today, and that doesn’t mean borrowing costs have stopped moving higher. Longer-term Treasury yields, mortgage rates and credit spreads remain important determinants of loan pricing, securities valuations and deposit competition. So what should members take away from the meeting? First, despite the pause, there is still work to be done on inflation.

Second, the language reinforces the importance of watching the data between now and December. The Fed will get September PCE data, and another employment report before the December meeting, and additional inflation and activity data that will help determine whether the September rate increase was enough.

And third, for balance-sheet managers, the message is that uncertainty around the path of short-term rates remains unusually high, and there is no forward guidance coming to quell volatility. Higher intermediate-term rates and positive slope in the yield curve have made this an optimal environment for growth- whether in core loan and deposit portfolios or if using wholesale tools like investments or advances.

Higher interest-rate volatility and the widening of credit spreads also are supportive of margin and interest income improvements. The Fed paused today, but it did not pivot. The economy is strong enough to tolerate additional restraint, and the labor market remains relatively stable, and inflation is still too high.

The Committee has simply decided that, after September’s rate increase, it can afford to wait for more information before taking its next step. It is ultimately whether the data will give Chair Warsh and the FOMC enough reason to tighten again.

Thank you very much for joining us. Have a great day.