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Fed Holds Rates With Hike Dissents as ECB Stays Put

The Fed held rates at 3-3/4 to 4 percent with two dissents for a hike, the ECB held at 2.50% amid an energy shock, and Lagarde will step down.

By BullionTree Editorial

· 6 min read

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Central Bank Watch weekly briefing, week of October 26, 2026

The week’s central-bank news was dominated by two rate holds. The Federal Reserve kept its target range at 3-3/4 to 4 percent, but two policymakers dissented in favor of a hike, and the Committee called inflation elevated. A day later, the European Central Bank left all three of its key rates unchanged while warning that an ongoing energy shock poses upside risks to inflation and downside risks to growth.

The ECB also announced that President Christine Lagarde will step down on 7 February 2027, and its surveys showed higher inflation expectations and tighter bank credit. In Washington, the U.S. Treasury sanctioned Rwanda’s defence ministry and a lender it linked to conflict gold, targeted North Korean IT worker networks, and published final data on U.S. holdings of foreign securities.

Interest rates: the Fed and the ECB hold, with different worries

The Federal Open Market Committee decided to "maintain the target range for the federal funds rate at 3-3/4 to 4 percent." The vote was 10 to 2. According to the statement, Lisa D. Cook and Beth M. Hammack "preferred to raise the target range for the federal funds rate by 1/4 percentage point at this meeting." Both dissents leaned toward tighter policy, not easier.

The Fed’s view of the economy was upbeat:

  • Economic activity "is expanding at a strong pace" and domestic spending "has been resilient."
  • Productivity growth is strong and capital investment is robust.
  • Job gains have kept pace with the workforce, and the unemployment rate "has changed little."
  • Uncertainty "remains elevated owing, in part, to geopolitical developments."

On prices, the Fed said "inflation remains elevated" and pointed to "a timely return of inflation to the Committee’s 2 percent goal," adding: "The Committee will deliver price stability."

The ECB’s Governing Council kept the deposit facility rate at 2.50%, the main refinancing operations rate at 2.65% and the marginal lending facility rate at 2.90%. Where the Fed described strong growth, the ECB described a harder mix. It said energy prices "have continued to rise," and that the "increased magnitude and duration of the energy shock" is likely to drive up inflation and lower growth.

The ECB also noted offsetting factors: underlying inflation "has remained broadly stable so far," wages "do not show a material response at this stage," and financing conditions have tightened. It repeated its commitment to its 2% medium-term target and said it is "not pre-committing to a particular rate path." Its APP and PEPP portfolios continue to shrink, and the Transmission Protection Instrument remains available to counter "unwarranted, disorderly market dynamics."

Separately, the ECB said Lagarde has informed the Governing Council and European Council President António Costa that she will step down on 7 February 2027. Her successor will be appointed by the European Council under Article 283 of the Treaty on the Functioning of the European Union. The release named no candidates and contained no policy change.

Euro area: higher inflation expectations and tighter credit

Two ECB surveys filled in the picture behind the rate decision.

In the Survey of Professional Forecasters for the fourth quarter of 2026, respondents expect headline HICP inflation of 3.0% for 2026, 2.6% for 2027 and 2.0% for 2028. The ECB said the 2026 and 2027 figures were revised up by 0.3 and 0.4 percentage points respectively. Longer-term expectations stayed "anchored at 2.0%". Forecasters saw inflation risks "tilted to the upside for 2026-28" and growth risks "tilted somewhat to the downside for all horizons." They expect real GDP growth of 1.0% in 2026. The ECB stressed the results do not represent the views of its decision-making bodies or staff.

The October 2026 bank lending survey showed banks tightening credit while borrowing fell, mainly because of "higher interest rates":

  • Net tightening of 9% for loans to companies and 14% for consumer credit.
  • Net demand of -6% for loans to firms and -27% for housing loans.
  • Banks expect housing loan demand to fall by -36% in the fourth quarter.

The ECB said this is "consistent with policy rate changes being transmitted smoothly to financing conditions." Banks also reported the sharpest deterioration in access to retail funding since the series began in 2011.

In a speech, Executive Board member Philip Lane, speaking for himself, called AI "a significant contributor to growth in the euro area." He said AI-exposed goods make up 3.4 per cent of the HICP, limiting the effect on headline inflation, and noted that European purchases of US Treasury bonds have declined.

Treasury: sanctions, conflict gold and capital flows

The Treasury’s Office of Foreign Assets Control sanctioned Rwanda’s Ministry of Defence and Zigama Credit and Savings Society. Treasury said M23 and the Rwanda Defence Force control gold mining sites in South Kivu, and that a Zigama branch enabled the transportation of gold from M23-controlled territory to Kigali. It said Zigama facilitated transactions for M23 and its political wing "amounting to tens of millions of dollars." Treasury Secretary Scott Bessent said "Rwanda must halt its support for M23 and withdraw its troops from eastern DRC."

OFAC also sanctioned 10 individuals and one entity tied to North Korean IT worker schemes, which Treasury said generate "hundreds of millions of dollars" for weapons programs. Australia and the European Union joined the United States this month in related designations.

Finally, Treasury’s annual survey put U.S. holdings of foreign securities at approximately $19.3 trillion at year-end 2025, up from approximately $15.8 trillion a year earlier, with the increase "mainly in equity."

What it means for gold and silver holders

Gold and silver pay no interest, so interest rates are among the factors investors watch most closely. Historically, signals that rates may stay higher or rise further have tended to raise the opportunity cost of holding non-yielding assets, and can support the dollar, which has often weighed on metals priced in dollars.

At the same time, elevated inflation, energy-driven price pressure, weaker growth and geopolitical uncertainty, all themes in this week’s releases, have historically been conditions in which many investors look to physical metals as a store of value. ECB policy and leadership changes can also affect the euro against the dollar, one channel into dollar-denominated prices.

Sanctions matter in two ways. Actions targeting conflict gold add scrutiny to provenance and responsible sourcing in the physical market. More broadly, the use of financial sanctions has been part of the backdrop when some central banks and investors discuss holding assets outside the traditional financial system, including gold.

Key figures this week

Figure Value
Fed target range 3-3/4 to 4 percent
Fed FOMC vote 10 to 2
ECB deposit facility rate 2.50%
ECB forecasters' HICP inflation 2026 3.0%
ECB lending survey, net demand for housing loans (Q3) -27%
U.S. Treasury: U.S. holdings of foreign securities, year-end 2025 $19.3 trillion

Sources

The official releases covered this week:

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