The Fed held rates with inflation at 3.6%. Two dissents show why it needs a stated rule

The Federal Open Market Committee decided on Wednesday, October 28, to leave the target range for the federal funds rate at 3.75%–4.00%, where it has been since the quarter-point increase on September 16. The statement passed 10-2. Lisa D. Cook and Beth M. Hammack voted against it because they wanted another quarter-point increase. The Committee called growth “strong,” a step up from “solid” in September, and said plainly that “inflation remains elevated.”

The data that arrived over the rest of the week made the dissenters’ case look stronger, not weaker.

Growth is not the problem

The Bureau of Economic Analysis said on Thursday, October 29, that real GDP grew at a 3.4% annual rate in the third quarter of 2026, up from 2.2% in the second quarter. Consumer spending plus private investment, which BEA calls real final sales to private domestic purchasers, rose at a 4.9% rate, after 4.6%. Weekly claims for unemployment insurance stayed low: initial claims were 194,000 in the week ended October 24, down from a revised 195,000 the week before.

An economy growing that fast, with layoffs that rare, does not need easy money to keep going.

Inflation is still well above the goal

The same day, BEA’s September income report put the PCE price index, the measure the Fed’s 2% goal is written in, 3.6% above its level a year earlier. In August the 12-month rate was 3.4%. Prices rose 0.5% in September alone. Excluding food and energy, the index rose 0.3% in September and 3.1% over 12 months.

There is a gentler reading in the quarterly numbers. The PCE price index rose at a 2.1% annual rate in the third quarter, after 5.0% in the second, so the summer was calmer than the spring. But September’s monthly jump came after that calm, and the 12-month rate is moving up, not down. Households are feeling it: inflation-adjusted disposable income fell 0.3% in September, and the personal saving rate was 3.8%.

The wage numbers do not show a spiral. The Employment Cost Index, released Friday, October 30, shows wages and salaries up 3.1% over the 12 months through September 2026, the smallest gain since the first quarter of 2021. That is good news on one front: pay is not chasing prices higher. It is also a reminder of who pays for inflation. When prices rise 3.6% and wages rise 3.1%, workers fall behind.

Money is still growing too fast

Milton Friedman’s starting point was the quantity of money, and here the picture has barely changed. The M2 money stock was $23.41 trillion in September 2026, 5.7% higher than a year earlier. Money growing that fast, in an economy with inflation already above target, leaves little reason to expect prices to settle at 2% on their own.

Markets and savers are pricing it

Long-term rates eased during the week. The 10-year Treasury yield closed at 4.94% on Friday, October 30, down from 5.00% on October 23 and matching its lowest close since September 17. Treasury’s note auctions cleared at lower yields than in September: 2-year notes at 4.708% on October 26, 5-year notes at 4.845% on October 27 and 7-year notes at 4.894% on October 29. Freddie Mac’s 30-year mortgage rate averaged 7.24% on October 29, down from 7.32% a week earlier.

Savers, meanwhile, are being offered a real return again. Series I savings bonds issued from November 1, 2026, through April 30, 2027, carry a fixed rate of 1.40% on top of inflation, the highest fixed rate Treasury has set since November 2006. And the government keeps borrowing: total public debt outstanding reached a record $40.594 trillion on October 29, about $421.8 billion more than on September 30, the last day of fiscal year 2026.

Why the split vote matters

There are honest arguments on both sides of the October decision. Waiting gives the September increase more time to work, and the third-quarter inflation rate shows prices can cool. Raising again would lean against 3.6% inflation and near-6% money growth, but it would land on families already paying more than 7% for a mortgage and on real incomes that just fell.

The trouble is that nobody outside the room knows which numbers would have changed the outcome. Ten members read this week’s data as a reason to wait. Two read it as a reason to act. The statement says only that “the accumulation of more information will help the Committee determine the policy stance.” That is discretion in its purest form, and it leaves borrowers, businesses and the Treasury guessing what the Committee will feel at its next meeting.

Friedman’s answer was a rule, announced in advance and followed: a steady path for money growth, or a stated formula for the policy rate. A rule would not make the tradeoffs above disappear. It would make them visible before the meeting, so anyone could check the September inflation print against the rule and know what to expect. A 10-2 vote on the same set of strong numbers is a sign that the Committee’s own members are working from different rules. The public deserves to know which one is in charge.

Figures: Federal Reserve FOMC statement, October 28, 2026; BEA GDP advance estimate for Q3 2026 and Personal Income and Outlays for September 2026, both released October 29, 2026; BLS Employment Cost Index for Q3 2026, released October 30, 2026; Department of Labor initial claims via FRED, weeks ended October 17 and 24, 2026; Federal Reserve H.6 M2 via FRED, September 2025 and September 2026; U.S. Treasury daily par yield curve, September 17 and October 23–30, 2026; TreasuryDirect auction results, October 26, 27 and 29, 2026; Freddie Mac PMMS, October 22 and 29, 2026; TreasuryDirect I bond rates for November 2026; Treasury Debt to the Penny, September 30 and October 29, 2026. All retrieved October 31, 2026.