The Federal Reserve kept interest rates on hold on 28 October, but two policymakers wanted to raise them. The Federal Open Market Committee voted 10–2 to maintain the target range for the federal funds rate at 3.75–4.00%. Lisa D. Cook and Beth M. Hammack dissented, preferring an increase of a quarter of a percentage point. The statement said that “Inflation remains elevated” and its policy text closed with the sentence: “The Committee will deliver price stability.”
Kevin Warsh, the Fed’s chairman, offered no promise about December. “I don’t believe in forward guidance absent exigent circumstances, absent a crisis,” Warsh told reporters, adding: “I also don’t believe in prejudging meetings.” Markets had already formed a view. On 26 October, the day before the meeting began, Kiplinger reported that CME Group FedWatch showed futures traders pricing in a 73% chance of another rise in December. The committee next meets on 8–9 December, which comes with a new Summary of Economic Projections.
A real-rate regime, not an inflation scare
The bond market is pricing the problem mainly as one of real rates. On the day of the decision the 10-year Treasury yield was 5.05% and the 10-year inflation-indexed (TIPS) yield was 2.67%, according to the Fed’s H.15 release. The 30-year nominal yield was 5.37%. On 29 October the 10-year real yield stood at 2.63%, the latest reading in FRED’s DFII10 series. With the real yield at 2.67% and the nominal yield at 5.05%, investors are being paid slightly more to lend in real terms than for expected inflation.
The statement itself does not mention energy. Warsh did: “Energy and related prices have moved higher again in recent weeks.” The Fed’s task, Warsh said, is to ensure “that relative price changes in some sectors do not broaden out across the economy”.
Why it matters for long-horizon owners
For defined-benefit pension funds that discount liabilities at market yields, higher rates lower the present value of what they owe. Plans that have hedged only part of their interest-rate exposure gain, because their liabilities shrink faster than their bond assets. Fully hedged plans see both sides fall together, which keeps funded status steady but brings no windfall.
The same arithmetic cuts the other way for long-duration assets. Infrastructure, private equity, venture capital and long-lease property are valued on cash flows that stretch decades ahead, so a higher real discount rate lowers what they are worth today. When a 10-year US government bond offers 2.67% above inflation, an illiquid asset has to clear that bar plus a premium for being locked up. Private-market valuations usually adjust with a lag, so the repricing may still be working through the marks that sovereign funds and endowments report. For owners without liabilities the question is opportunity cost: each new commitment to a long-lived fund is now measured against a real return available on US government bonds.
There is a governance point too. Warsh said the Fed believes “eight meetings per year is the right number”, but that in 2027 one meeting “will focus exclusively on broad monetary policy strategy, with neither a vote on the federal funds rate nor a policy statement anticipated”. Investment committees that schedule hedging decisions around Fed meetings will have one fewer policy date to plan for.
The regime may not last. Warsh said progress so far was encouraging, noting that “inflation compensation is going in the right way”. Yields eased the day after the decision, with the 10-year nominal yield at 4.98%. If energy prices fall, real yields could retreat, and owners who had cut private-market pacing in a hurry would have acted near the top. A December rise is also a market probability, not a commitment: the chairman declined to prejudge it.
What to watch
- 8–9 December: the next FOMC decision, with fresh economic projections that will show how many officials now favour a rise.
- The two dissenters: any public remarks by Lisa D. Cook and Beth M. Hammack setting out the case for moving sooner.
- The 10-year real yield: whether it holds above the 2.63% recorded on 29 October.
Sources
- Federal Reserve issues FOMC statement, Board of Governors of the Federal Reserve System, 28 October 2026
- Transcript of Chairman Warsh’s Press Conference (preliminary), Board of Governors of the Federal Reserve System, 28 October 2026
- H.15 Selected Interest Rates (Daily), October 30, 2026, Board of Governors of the Federal Reserve System, 30 October 2026
- Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis, Inflation-Indexed (DFII10), FRED, Federal Reserve Bank of St. Louis, 29 October 2026
- Meeting calendars and information, Board of Governors of the Federal Reserve System, 28 October 2026
- October Fed Meeting: Live Updates and Commentary, Kiplinger, 27 October 2026