The Federal Reserve held its benchmark interest rate at 3.75% to 4% on Wednesday, pausing after September's increase, as two policymakers voted for another quarter-point hike and Chair Kevin Warsh said the central bank will make fewer rate decisions starting next year.

For investors in Asia, the pause buys time rather than relief. Futures still point to a December increase, and Hong Kong's base rate, which is tied to the Fed's target range through the city's currency peg, has no new U.S. move to follow.

The hold was widely expected. The Federal Open Market Committee voted 10-2, the Fed said in its statement. Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented in favor of a quarter-point increase. The September hike, the first since 2023, had passed 12-0.

Hammack also dissented in July for the same reason, Reuters reported.

Fed Statement Upgrades the Economy

The statement described economic growth as strong, an upgrade from solid in September, and repeated that inflation remains elevated. It dropped September's line that the rate increase would speed the return to the 2% goal. In its place, the committee said "the accumulation of more information" would help it settle on the right policy stance.

Reuters said the new wording edged toward the kind of forward guidance Warsh has said he wants to avoid, leaving room for more increases if inflation does not cool. Trading Economics reported that traders saw the changes as slightly more dovish. U.S. consumer prices rose 3.7% from a year earlier in September, up from 3.4% in August, according to The Guardian.

At his news conference, Warsh described bringing down inflation as a gradual process. He said the September increase was having an effect, citing data showing inflation expectations moving lower, and acknowledged the Fed had not yet reached its target. The "monetary medicine is starting to work some," he said, according to Kiplinger.

He also said higher rates do affect spending on artificial intelligence, and that he was not trying to slow the economy so hard that people lose their jobs, Kiplinger reported. Warsh said the Fed had made clear its willingness and readiness to act, according to Reuters.

He said the Nov. 3 midterm elections played no role in the decision, The Guardian reported. The period ahead is "information rich," he told reporters.

Warsh Sets Aside Meetings for Strategy

Warsh said the committee will keep its eight scheduled meetings a year, but one meeting in 2027 will be devoted solely to broad monetary policy strategy, with no vote on the federal funds rate and no policy statement, according to Kiplinger. He said he expects two such meetings in 2028.

That leaves seven rate decisions in 2027 and six in 2028, Trading Economics reported. Warsh said the change would allow fuller strategic discussion among policymakers, Kiplinger reported.

The Fed's 2027 calendar, updated Wednesday, still lists eight meetings, from Jan. 26-27 to Dec. 7-8, and does not say which will be set aside.

What the Fed Decision Means for Hong Kong and Asia

The Hong Kong Monetary Authority sets its base rate by formula: 50 basis points above the lower end of the Fed's target range, or the average of five-day moving averages of overnight and one-month HIBOR if that is higher. The HKMA raised the base rate to 4.25% on Sept. 17, the day after the Fed's last increase.

With the Fed's range unchanged, the U.S.-linked leg of that formula stays at 4.25%, well above local interbank rates. One-month HIBOR fixed at 2.71% and overnight HIBOR at 2.54% on Wednesday, according to the Hong Kong Association of Banks. The HKMA had not announced its base rate or commented on the decision as of early Thursday in Hong Kong.

After the Fed's July hold, the HKMA said Hong Kong dollar interbank rates generally track U.S. rates under the peg, though local funding demand also moves shorter-term rates.

The U.S. dollar index slipped to 102.1 after the decision, and the 10-year Treasury yield stayed above 5%, according to Trading Economics.

On Wall Street, the S&P 500 rose 0.33% to 7,748.03 and the Nasdaq Composite gained 0.32% to 26,561.24, according to preliminary figures cited by Reuters. Chip stocks had an Asian tailwind: Micron Technology jumped after South Korea's SK Hynix reported a more than sevenfold jump in quarterly profit. "The Fed didn't throw any curveballs," said Ryan Detrick, chief market strategist at Carson Group, Reuters reported.

Traders priced an 87.4% chance of a quarter-point increase in December after the decision, up from 78.3% on Tuesday, according to CME FedWatch data cited by Reuters. Kay Haigh, global head and chief investment officer of fixed income and liquidity solutions at Goldman Sachs Asset Management, said in comments compiled by Kiplinger that the firm expects hikes to resume in December.

The next tests come quickly. U.S. personal consumption expenditures price data and a first estimate of third-quarter growth are due Thursday, Reuters reported. The Bank of Japan announces its decision on Oct. 30 after a two-day meeting, according to its schedule. The Fed's final meeting of the year, on Dec. 8-9, will bring new economic projections.