Kevin Warsh held rates at 3.75%–4% while Cook and Hammack voted for another hike

Fed Chair Kevin Warsh and the Federal Open Market Committee kept the benchmark rate at 3.75% to 4% on October 28, one month after the first increase following nine months on hold ^[1][4]. Governor Lisa D. Cook and Cleveland Fed President Beth M. Hammack dissented in the 10-to-2 vote because they wanted another quarter-point increase ^[1].

At his press conference, Warsh said the September increase had removed some accommodation and that the target is 2% inflation on the PCE measure ^[14]. Asked about December, he said, “I don’t believe in forward guidance absent exigent circumstances” ^[14]. The Fed also held the rate it pays on bank reserves at 3.90% and the discount rate at 4.0% ^[2].

Warsh said a Balance Sheet Task Force will bring its recommendations to the committee, probably early in the first quarter ^[14].

Most officials expect at least one more increase this year, though Warsh would not commit

Minutes of the September 15–16 meeting say most participants thought another increase would likely be appropriate by year end ^[3]. Waller said 16 of the 18 officials who submitted projections in September expected at least one more hike before the end of the year, and four of them expected two ^[4].

Inflation near 3.8% is the reason officials give

Fed staff estimated total PCE inflation at about 3.8% for the year through August, with core inflation near 3.4% ^[3]. Barr said further adjustments are “likely to be needed” to bring it down in time ^[6].

Cook said data-center investment draws on “construction labor and energy,” which could push prices up elsewhere in the economy ^[7]. Jefferson said housing services prices had helped bring inflation down in recent years but had “leveled off this year” ^[5].

Mortgage rates sit about 2.3 points above the 10-year Treasury

Fed staff noted that mortgage rates rose a little more than 10-year yields before the September meeting, and that borrowing to buy homes “remained depressed” ^[3]. The 30-year fixed averaged 7.24% in the week of October 29 ^[8], and by our math that is 2.33 points above the 10-year yield of 4.91% on November 2 ^[9].

Short-term benchmarks sit close to the Fed’s range, while loans on land and construction price several points higher ^{[8][10][11][12][13]}. Fannie Mae and Freddie Mac have been buying mortgage bonds to narrow the mortgage gap, which we cover in our story on their purchases.

How to use this

For homebuyers and refinancers

1. Ask your lender for a written rate lock with the lock period stated, and ask what a float-down option costs. On a $400,000 loan at 7.24% ^[8], we calculate principal and interest at about $2,726 a month, and a rate half a point lower cuts that by about $134.
2. Ask the loan officer how your quote has moved since early October. The 10-year Treasury fell from 5.28% to 4.91% between October 2 and November 2 ^[9], so a quote that has not improved since then is one to question.

For construction and bridge-loan borrowers

1. Find the index in your loan documents and how often the rate resets. The prime rate is 7.00% after rising a quarter point on September 17, the same day the Fed’s September increase took effect ^[3][10], and the 30-day average SOFR was 3.91% on November 2 ^[11].
2. Size your interest reserve at a rate 50 basis points above today’s. Waller said markets read the Committee as likely to raise rates by that much in the coming months ^[4], and we calculate that on a $1 million average drawn balance the extra cost is about $5,000 a year.
3. Compare your all-in rate with NAHB’s second-quarter survey, where average effective rates ran from 10.43% on land acquisition loans to 12.59% on land development loans ^[12]. If your quote prices above that range, ask the lender to explain the spread in writing.

For investors and lenders

1. Underwrite home sale exits at the current 7.24% mortgage rate ^[8] and test what a buyer can afford at that payment. Fed staff described financing conditions as somewhat restrictive for mortgage borrowers and small businesses ^[3].
2. Track the dissents at each meeting along with the decision. Two of 12 voters wanted a hike in October ^[1], and more dissents at the next meeting could suggest wider support for an increase.