Colby Smith

One of the primary reasons that the Fed has endorsed a gradual approach to raising rates to tame inflation is its view that the labor market isn't a primary driver of price pressures.

As October's jobs report shows, wage growth (while slightly higher last month) is still relatively muted despite the unemployment rate edging lower and monthly jobs growth picking up.

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By holding rates steady, the Fed wagered it could afford to take its time to accumulate more information as it debates how much more to tighten policy

But its a high-stakes bet. If price pressures do not moderate as many officials expect, or new ones emerge, the Fed could find itself playing catch-up. The more aggressive it has to be later on, the bigger the economic fallout could be.

By holding rates steady, the Fed wagered it could afford to take its time to accumulate more information as it debates how much more to tighten policy

But its a high-stakes bet. If price pressures do not moderate as many officials expect, or new ones emerge, the Fed could find itself playing catch-up. The more aggressive it has to be later on, the bigger the economic fallout could be.

Takeaways from the Fed's October meeting:

1) The Fed held rates steady as expected. Two officials dissented in favor of a quarter-point increase, including Lisa Cook, a governor who is fighting to keep her job amid a campaign by Trump to fire her. Warsh leaned into the idea that the Fed had the flexibility to accumulate more information to make the right determination about rates not only because expectations about future inflation do not point to a lack of confidence in the Fed's ability to eventually achieve the 2 percent target, but also because there are not yet signs that the economy is overheating. "Is the economy running too hot? Is the economy too strong? That isn’t the judgement of most of my colleagues," said Warsh.

2) Warsh repeatedly brought up the shift in financial conditions since September, which he suggested helped the Fed in the pursuit of its inflaiton goal on the margins. Credit conditions have "tightened for some businesses and households, much as we would expect," he said. "Market participants are becoming somewhat more discerning in their capital allocations, and while overall financial conditions are tighter, I'm unwilling and unable to call them tight. But broadly, these developments go in the direction of achieving a longer, more durable period of economic growth and price stability."

3) The Fed's meeting comes just days before the midterm elections, but Warsh emphasized that politics played no role in Wednesday's decision. But the political backdrop has been hard to ignore entirely, especially given Trump's repeated attacks on the Fed for not complying with his demands for lower rates. The White House has demanded that Cook attend an in-person hearing to defend herself against allegations that she committed mortgage fraud, something Trump has cited as a reason to fire her.

4) Warsh's biggest announcement of the day pertained to how often the Fed will vote on interest rates in the coming years, an idea that the New York Times first reported the chairman raised in July. In 2027, the Fed will hold seven policy meetings, with one dedicated to discussing "broad monetary policy strategy." In 2028, there will be six policy meetings and two on strategy.

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Fed holds rates steady. Cook issues her first-ever dissent on monetary policy in favor of a quarter-point hike. She was joined by Hammack.

The major change to the statement was this line: "The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee's 2 percent goal."