By: Michael Sellers
Partner, Portfolio Manager
Happy Friday everyone! In a widely anticipated move, the Federal Reserve voted to keep interest rates unchanged at 3.75% to 4% this week at the conclusion of its October 27-28 meeting. The vote was 10-2, with Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack voting in favor of a 25 basis point hike. Just six weeks ago, the Fed voted unanimously to raise rates for the first time since July 2023.
Takeaways From The October Fed Meeting
In his press conference remarks, Fed Chair Kevin Warsh explained the Fed’s “wait-and-see” approach, commenting that several broad-based market measures of projected inflation had moved lower despite persistently higher energy costs.“I feel good about those signposts,” he said, also touting the strength of the underlying economy, which he noted has broadened beyond just AI-related investment.
The Fed’s policy statement indicated that it was leaning towards one more rate hike this year: “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% goal.”
Markets are also expecting the Fed to raise rates at its final meeting of the year. CME Group’s FedWatch tool projects a 72% chance, as of time of writing, that the Fed raises rates by 25 basis points at the conclusion of its December 8-9 meeting.
In other news, Chair Warsh announced that, beginning next year, the Fed will reduce the number of meetings where members vote on interest rate changes. The number of Fed meetings will remain the same, with eight scheduled dates. However, one meeting will exclusively be focused on broader monetary policy, with no vote on rates and no policy statement.
Looking ahead to 2028, Warsh said the Fed will have two non-voting meetings focused on monetary policy strategy and six voting meetings to set monetary policy. This is consistent with Warsh’s approach of reducing Fed transparency and guidance to markets.
What Does This Mean For Investors?
For one, a Fed pause doesn’t necessarily mean a “once-and-done” rate-hiking cycle. In fact, the last time this happened was in 1997. Rate hikes, as well as cuts, typically happen in cycles. Furthermore, Chair Kevin Warsh has been consistent in his remarks about inflation remaining too high.For another, the markets will have to get used to a less transparent Fed. This has been telegraphed by Warsh since May, when he took office as Fed Chair.
The Fed will have one less voting meeting in 2027 and two less in 2028. Maybe just as importantly, the Fed will not release a policy statement following those non-voting meetings. This has the potential to create more volatility, as the markets will have longer time periods to interpret and digest future rate moves.
As we look ahead to the Fed’s next meeting on December 8-9, the markets will continue to debate if the Fed should raise rates again, and if so, how many more times.
It is also clear that the Fed is happy to let markets ruminate about the future path of rates without a lot of Fed input. This will inevitably create periods of angst, and possibility of volatility, if the Fed embarks on further hikes with less transparency to the markets.
As always, we encourage our clients to remains disciplined and prudent while seeking out opportunities when the market presents them.
Closing Time
That’s all for this week, see you next Friday. Until then, keep up with us on LinkedIn.We are here for you. If you have any questions or concerns, please reach out to a member of your Fidelis Capital team.
