The October pause: Key takeaways from the Fed rate decision

T​he Federal Reserve held rates steady at the last meeting before the midterm elections, while setting the table for a likely rate move in December.

Before we dive into the details, let’s note that Chairman Warsh announced a new protocol for Fed meetings starting in 2027. Next year, the Fed will continue to hold eight FOMC meetings, but one will focus specifically on monetary policy strategy and will not include a vote on rates.

In 2028, there will again be eight meetings, but two will focus on strategy rather than rates. In other words, fewer meetings will focus on setting interest rates, and more time will be spent ensuring the FOMC has clear goals and strategies to operate under moving forward.

Sources: Federal Reserve Board, Haver Analytics, First Trust

Within the Fed statement, there were minimal changes to language. The economy is seen as expanding at a “strong” pace, spending is “resilient,” and capital investment is “robust.” But uncertainty also remains elevated, partly due to geopolitical events, and inflation is still above target.

This is much the same story the Fed noted in September. The only substantive change came in new “hold” language stating that “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 percent goal.”

In the press conference, Warsh faced multiple questions asking why the Fed paused further rate hikes when inflation remains above the 2% target. In short, Warsh noted that the rate hike made six weeks ago has had the generally expected impact—though it’s still early—and hikes come with other potentially negative impacts on areas like employment that need to be considered.

The Fed does not view the current rate environment as “tight,” but some recent tightening in financial and credit conditions suggests a movement in the right direction. Over the next six weeks, the Fed will watch to see if the data confirm ongoing improvements or if additional rate hikes are warranted.

Warsh’s most notable statement came in response to questions about how the AI boom is impacting demand and, in turn, inflation. FOMC members generally believe the economy is running neither too hot nor too strong in today’s intensive AI-investment environment, which is seeing historic levels of capex spending.

In their view, economic and productivity growth remains strong and is broadening. So, for now, the Fed does not want to “throw sand in the gears” by raising rates to slow demand.

We would argue that without data center spending, the economy would be weaker. Housing and auto sales remain subdued. So, holding rates steady is not indefensible.

We expect the FOMC will raise rates again in December, but we believe further hikes after that will be fewer than the markets are currently pricing in.

Unless oil prices rise substantially again, the impact on year-ago inflation readings will moderate in the spring, while any resolution to the conflict in the Middle East is likely to ease inflation concerns and put the Fed on a prolonged pause.

Editor’s note: Brian Wesbury is chief economist at First Trust Advisors LP. He and his team prepare a weekly market commentary titled “Monday Morning Outlook,” as well as frequent research reports and the recurring feature “Three on Thursday.” Proactive Advisor Magazine thanks First Trust for permission to republish an edited version of this commentary, which was first published on Oct. 28, 2026.

The opinions expressed in this article are those of the author and the sources cited and do not necessarily represent the views of Proactive Advisor Magazine. This material is presented for educational purposes only.