Oct 28, 2026 · 25 min

Fed holds rates as Warsh leaves markets guessing

Instant Reaction: Fed Stands Pat, Says More Data Will Help Next Decision

The decision keeps borrowing costs unchanged while uncertainty over the Fed’s reaction function raises questions about inflation, financial conditions, and future policy.

3 key takeaways

1The Fed held rates at 3.75%–4% as persistent inflation and a resilient economy argued against an immediate move.
2Analysts called the decision a potentially hawkish hold but found Kevin Warsh’s communication too vague to guide markets.
3The panel examined AI-related financial risks, internal Fed voting dynamics, and whether markets are already tightening conditions for policymakers.

Don't miss

Michael McKee questions what the Fed can realistically learn before its next meeting given the limited forthcoming inflation data.

The brief

The Federal Reserve held its target rate at 3.75%–4%, citing persistent inflation and a resilient economy while waiting for more data before its next decision.

Analysts described the move as a potentially hawkish hold, but questioned whether Chair Kevin Warsh clarified the reaction function or merely emphasized tighter financial conditions.

Priya Misra and other panelists examined whether AI financing risks, credit spreads, and market volatility influenced the Fed’s caution—and who benefits from the decision.

The discussion compares Warsh’s preference for less forward guidance with earlier Fed communication, asking whether that model fits a faster, more financially sensitive economy.

Michael McKee highlights the thin supply of forthcoming inflation data, while Jeffrey Rosenberg weighs oil, the AI trade, the yield curve, and financial-market stress.

The episode’s central tension is whether the Fed can manage inflation and financial conditions when its chair offers fewer signals and every vote matters more.

What was said on this episode

17 statements · 3 positive · 8 negative · 1 mixed · 5 neutral

Jon Ferroon Federal ReserveNegative2:47
The Fed chair’s rhetoric is disconnected from policy.
“There appears to be a disconnect between the rhetoric and the policy from the Fed chair Kevin Walsh.”
Listen at 2:47
Jon Ferroon Federal ReserveNegative3:10
The Fed held rates despite high inflation and a strong economy.
“Inflation is too high. The economy is strong. Yet the Fed decided to hold.”
Listen at 3:10
Jon Ferroon Williams and Jefferson Fed guidanceNeutral4:59
Williams and Jefferson’s guidance will determine policy even before new data arrive.
“when you hear from Williams and Jefferson, when their guidance about October or whatever the month might be comes in, even if it predates the data, that's what the policy is going to be.”
Listen at 4:59
Lisa Abramowiczon Federal ReserveNegative5:31
The Fed’s reaction function is currently less clear.
“the reaction function is even less clear right now.”
Listen at 5:31
Lisa Abramowiczon Yield curve and U.S. dollarMixed6:22
The yield curve is steepening while the dollar is weakening.
“you are seeing a steepening in the yield curve and the dollar getting weaker.”
Listen at 6:22
Lisa Abramowiczon Federal ReserveNegative6:32
The Fed will wait longer before making a policy move.
“this is a Fed that's going to wait a little bit longer.”
Listen at 6:32
Jon Ferroon AnthropicPositive7:15
Anthropic’s Dario is likely pleased with the Fed decision.
“If I'm Dario at Anthropic, I'm probably pretty happy with this decision and that news conference.”
Listen at 7:15
Jon Ferroon Anthropic IPOPositive7:22
Anthropic has an IPO coming up within weeks.
“Got an IPO coming up in a few weeks.”
Listen at 7:22
Priya Misraon Federal Reserve interest ratesNegative8:03
The Federal Reserve is likely to raise rates further.
“They're likely to hike some more.”
Listen at 8:03
Priya Misraon InflationPositive8:15
The inflation trend is moving lower.
“the inflation trend is heading lower.”
Listen at 8:15
Priya Misraon Federal ReserveNegative9:23
Chair Warsh’s communication revealed little about the Fed’s reaction function.
“his communication, I think, did not tell us much about the reaction function.”
Listen at 9:23
Priya Misraon Monetary policy and financial conditionsNeutral9:45
Monetary policy affects the economy through financial conditions.
“monetary policy works into the economy through financial conditions.”
Listen at 9:45
Priya Misraon AI tradeNegative9:58
Chair Warsh is rejecting the view that the AI trade is insensitive to interest rates.
“all this idea that the AI trade is not interest sensitive, I think he's pushing back against it.”
Listen at 9:58
Jon Ferroon Federal Reserve inflation policyNegative14:02
The Fed is willing to tolerate above-target inflation without acting.
“they're willing to tolerate above target and messy prints like the one we just got because they're not willing to act.”
Listen at 14:02
Priya Misraon Inflation shockNeutral15:40
The current inflation shock is still supply-driven.
“we think this is still a supply shock.”
Listen at 15:40
Priya Misraon Supply shock monetary policyNeutral15:44
Conventional theory recommends looking through a supply shock.
“If this is a supply shock, normal conventional economic theory would say, look through it.”
Listen at 15:44
Priya Misraon Federal ReserveNeutral16:13
Markets price three additional hikes, exceeding the most hawkish official’s projection.
“We're still pricing in three hikes, which is more than the most hawkish Fed official has been.”
Listen at 16:13

Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.

Books & mentions

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A History of the Federal Reserve

Alan Meltzer’s history provides context for the Fed’s leadership, policy choices, and communication evolution.

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