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Despite inflation remaining stubbornly high, the Federal Reserve opted at its October meeting to hold rates steady. This leaves the central bank’s benchmark overnight borrowing rate in the range of 3.75% to 4.00% following a rate hike in September, its first since 2023.
The decision was not, however, a unanimous one. Fed Governor Lisa Cook, in her first-ever dissent, and Cleveland Fed President Beth Hammack, who has dissented numerous times this year, both voted for a quarter-point hike. Still, the Fed acknowledged in a statement accompanying its rate decision that it had “more work to do to quell inflation, which it described as ‘elevated,’” said The New York Times.
What will the Fed do next?
Though the Fed held rates steady at its October meeting, which occurred just days ahead of the consequential midterm elections, it has made “no recent progress on getting inflation back down to the central bank’s 2% target,” said the Times. This raises the very real possibility of another rate hike at an upcoming meeting.
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Fed policymakers are “widely expected to raise their benchmark interest rate at their next meeting in December in an effort to tamp down demand and bring prices under control,” said NPR.
However, taming inflation back to the Fed’s 2% target may not be so easy, given that “some of the forces pushing up prices — specifically the rapid buildout of artificial intelligence infrastructure and higher energy prices — may not be easily tamed by higher interest rates,” said The Associated Press. Even so, [Federal Reserve Chair Kevin] “Warsh said the ‘overwhelming consensus’ among Fed officials is what they’ve done ‘is starting to work some,’ noting that credit conditions ‘tightened for some businesses and households’” since the prior rate hike decision in September.
When is the next interest rate decision?
The Federal Reserve will next meet December 8-9, its last meeting of 2026. While Warsh “declined to provide much insight into what the Fed may do next, most economists still expect the central bank to hike its key rate another quarter-point at its next meeting,” said the AP.
How do interest rates affect the economy?
The Fed uses interest rates to either stimulate or rein in economic activity. Generally, the theory is that “cutting rates decreases borrowing costs, prompting businesses to take out loans to hire more people and expand production,” which “in turn, stimulates economic activity and growth,” said Investopedia. “Conversely, when the economy is overheating, the Fed may raise rates to cool things down and prevent inflation from spiraling out of control.”
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What do rate changes mean for your wallet?
Beyond broader economic implications, the Federal Reserve’s decisions also hold significance for your finances.
When rates are cut, that provides “some welcome relief for consumers who are in the market for a home or auto purchase, as well as for those carrying pricey credit card debt,” said CBS News, by lowering interest rates on those products. On the other hand, rate cuts “could also have a downside of shaving the relatively high returns recently enjoyed by savers.”
Meanwhile, when the Fed decides to raise rates, it usually has the inverse effect, in that it will typically lead interest rates on credit cards, auto loans and variable rate mortgages to go up. The good news with rate hikes, though, is that “savings accounts tend to earn more interest,” said LendingTree.
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.
