There’s no discernible reason for the pause in tightening.
According to the Federal Reserve today, “Economic activity is expanding at a strong pace.” Despite an energy shock, “domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little.” At the same time, “Inflation remains elevated.” But rest assured, the Fed “will deliver price stability.” No ifs, ands, or buts about it.
And that is why the Fed decided . . . to keep monetary policy exactly where it already is. No additional rate hike, no tightening. Just maintaining the status quo.
I’m not the only one to notice the dissonance between the Fed’s messaging and actions. Market watchers on social media are also asking the obvious question:
So Econ growth is accelerating, job market is stable/strong and inflation is elevated-so sit on your hands. Hmm.🤔
— Kathy Jones (@KathyJones) October 28, 2026
There is a tension now between how the Fed views the economy vs. how they *plan to respond to it.
They view growth as "strong" and inflation as "elevated," but seem to think the policy answer to that is a slow/modest hiking cycle.
— Jon Turek (@jturek18) October 28, 2026
Two members of the Fed’s governing committee, which prizes unanimity in its decisions, dissented in favor of raising interest rates by a quarter point as the central bank did last month. Almost everyone anticipates another rate hike in December, and probably more next year. So why, a reporter immediately asked Kevin Warsh at the Fed chair’s press conference, would you not just raise interest rates now?
It’s complicated, said Warsh. He and his colleagues are committed to restoring “price stability” — defined as yearly inflation of 2 percent or below, as measured by the Personal Consumption Index (PCE) — but the Fed needs more information to know the best course to get there. But Warsh also noted that a lot of economic data points already exist. And “while overall financial conditions are tighter” than at the last meeting, Warsh says he is “unwilling and unable to call them tight.”
How much new information can we get in a month and a half? Year-over-year PCE inflation was 3.4 percent in August and hasn’t met the Fed’s target since 2021. You can bet it won’t be 2 percent for September or October. Inflation as measured by the Consumer Price Index already came in for September, at 3.7 percent. Core PCE, which excludes food and energy prices, is up by 3.0 percent as of the most recent data.
Fed officials may respond, “What’s the rush?” The central bank can always hike rates later to quash inflation. Well, the problem with waiting around — as Americans have noticed — is that inflation compounds every month. Prices don’t go back down. They might just keep rising a little slower than they rose before.
Warsh insists that the midterms had nothing to do with the Fed’s decision. All right. What explains it, then? If the Fed is responsible for reducing inflation, and inflation is persistently above target, and the Fed has already started a round of rate hikes to attain “price stability,” and it seems like the economy is doing just fine in every other regard, then why would you leave interest rates unchanged? How is today’s inaction supposed to bolster the Fed’s credibility that it will, in fact, get inflation below 2 percent?
An observer at the New York Times commented, “The biggest question coming into the news conference was why the Fed didn’t raise rates given the persistence of inflation. I’m not sure we ever got an answer, despite the best efforts of reporters to pin Warsh down.” Maybe there is no answer.