Fed Holds Rates at 3.75% to 4%: The New Normal

If you have been checking your mortgage rate or wondering what the Federal Reserve is doing, there is a simple answer as of this week. The central bank kept its benchmark federal funds target range at 3.75% to 4.00%. This decision came after the October 28, 2026, meeting, marking a hold in policy following a rate hike in September.

This is not a sign that the Fed has given up on fighting inflation. Quite the opposite. Three regional Fed presidents have spoken publicly this week about the need for further increases, signaling that the current rate level is likely a temporary plateau rather than the final destination for borrowing costs.

The Split Vote and Current Rate

The decision to hold rates steady was not unanimous. The Federal Open Market Committee approved the move by a 10 to 2 vote. Two dissenters, Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack, wanted a 25 basis point increase at this meeting. Their opposition highlights a faction within the Fed that believes inflation is still too high and requires immediate restraint.

Despite the dissent, the majority chose to pause. The committee noted that economic activity is expanding at a strong pace, with resilient domestic spending and robust capital investment. However, they acknowledged that inflation remains elevated, leaving officials cautious about declaring victory over price pressures.

Why the Pause Now

Holding rates steady does not mean the Fed has ruled out another increase. Policymakers said additional information would help determine the appropriate policy stance. Future decisions will depend on inflation readings, employment data, consumer demand, energy prices, and financial conditions.

The Fed is balancing persistent inflation against resilient economic activity. They are gathering evidence before deciding whether borrowing costs should rise or fall. If price pressures persist, the central bank could keep rates restrictive or tighten policy further. If inflation eases, the outlook could change.

The Case for More Hikes

Dallas Fed President Lorie Logan made a clear case for further tightening. She stated that the Fed needs at least two more 25 basis point rate hikes, bringing the cumulative increase to 50 basis points. Logan believes that inflation remains too high and that the policy rate must rise to sufficiently restrict the economy and bring inflation back to the 2% target.

Logan argued that a gradual approach helps households, businesses, and market participants adapt to higher interest rates. This reduces the risk of unnecessary sharp declines in economic activity. She also emphasized the need for the Fed to clearly communicate its policy objectives, a stance that differs from previous views on providing guidance only during crises.

Market Expectations and Next Steps

Markets are pricing in a 70% probability that the Fed will raise interest rates by 25 basis points in December. The CME FedWatch tool shows the remaining odds in favor of a pause. Financial futures indicate investors expect the next quarter-point rate hike to occur at the Fed’s final meeting of the year.

After a potential December hike, the market anticipates a pause in January and another increase in March. This timeline reflects the consensus that the Fed will continue to tighten policy gradually. The goal is to bring inflation down to the 2% target without disrupting the resilient US economy.