FOMC Commentary – Protocol, Above All Else

October 29, 2026 - As anticipated, the Federal Open Market Committee (FOMC) of the Federal Reserve voted to leave the target range for the federal funds rate unchanged at 3.75% to 4%. The two dissenting votes in favor of a quarter point interest rate hike were somewhat less expected, especially given that one of the votes came from Federal Reserve Governor Lisa Cook. Governor Cook is generally considered a monetary policy dove, with a strong focus on employment growth and general economic conditions. How much can be read into the dissent is open to question; other voting members have signaled their mounting concerns over the pace of price increases, and nothing is essentially changed in the markets’ views that an interest rate increase is probable in December. Most likely Cook and fellow dissenter Beth Hammack (President of the Federal Reserve Bank of Cleveland) felt that if the FOMC intends to move rates higher in December because of inflationary pressures, why not move ahead with such an action now. Fed Chairman Warsh explained at great length during his press conference that the answer to that question is found in the “accumulation of more information” over the next six weeks, a “period right in front of us that is information rich” which will allow the Fed to “determine the correct protocol.” “Protocol” was one of the more overworked words of the press conference; one day later, no one yet really seems to know what the word means in this context.

The Federal Reserve currently has a communication problem that has nothing to do with forward guidance or the lack thereof. The press conference gave voice — intentionally or unintentionally— to a remarkable lack of urgency in dealing with an inflation rate that many think is going in the wrong direction.  At numerous junctures in the press conference, Chairman Warsh deferred question answers to the work of his five task forces, which will report back at undefined times next year. Chairman Warsh did offer his opinion that "inflation conditions” were going in the right direction (!) and that productivity growth has been moving higher for some time, but he seemed to acknowledge he has little evidence for either development. Central bankers have always lived in a rather arcane world, sheltered from the uncomprehending gaze of the public, and perhaps that is the best way to execute monetary policy. Yet, following the financial market debacles of the Great Financial Crisis in 2008 and 2009, there has been a higher level of desire for understanding what monetary authorities are seeing and doing and why. The current Federal Reserve has no intention of explaining itself (much) until 2027.

Several announcements had little to do with interest rates but carried substantial importance. First, the number of Federal Reserve/FOMC interest rate meetings will be reduced to 7 in 2027, with an eighth meeting intended to serve as a discussion of broad policy/strategy/ “protocol” issues; there will be no public announcements made in association with the eighth meeting, tentatively scheduled for the Fall. Second, balance sheet reduction actions are not a priority right now but may receive more attention in 2027 after the balance sheet task force reports back. Finally, other members of the Federal Reserve and FOMC (Federal Board Governors and Federal Reserve Bank Presidents) remain free to offer personal commentary on policy and, by Chairman Warsh's expectation, will do so after the current communication blackout period ends on Friday. Stay tuned —this could get very interesting, given that both the September Personal Consumption Expenditures (PCE) inflation index and third-quarter US GDP growth were reported this morning at the high end of their expected ranges—3.6% and 3.4%, respectively.