US: Effective Fed Funds Rate Rises to 3.88%, Fed Maintains Monetary Policy

Effective rate up 13 basis points in one month

According to data from the Federal Reserve Bank of St. Louis, the effective Fed Funds rate stood at 3.88% in October 2026, up from 3.75% the previous month. This increase amounts to 13 basis points, or a relative variation of 3.47%.
This development marks a break from the stability observed in the spring and during the summer. From May to August 2026, the effective monthly rate remained at 3.63%. It then rose in September, following the Fed's decision to raise its target range by 25 basis points, to 3.75%–4.00%.
On a yearly basis, the effective rate remains below its level in October 2025, when it reached 4.09%. The decrease represents 21 basis points, or 5.13%.

The Fed pauses, but two members wanted another hike

On October 28, 2026, the Federal Open Market Committee (FOMC) decided to maintain the target range for the Fed Funds between 3.75% and 4.00%. This decision was adopted with ten votes in favor and two against.
The two dissenting members, Lisa Cook and Beth Hammack, wanted to raise rates by an additional 25 basis points. This opposition highlights the differing views within the committee on the necessary degree of monetary restriction.
In its statement, the Fed describes the U.S. economy as continuing to grow at a solid pace, driven notably by the resilience of domestic consumption, productivity gains, and corporate investments. Employment is progressing at a rate considered consistent with the dynamics of the labor force, while unemployment has changed little.
However, inflation remains high. The central bank indicates it wants more information before determining the appropriate monetary direction to ensure a return to the 2% target.

What the 3.88% Level Means for Markets

The effective Federal Funds rate corresponds to the average cost of overnight transactions on the U.S. federal reserves market. It should be distinguished from the target range set by the Fed: the latter constitutes a monetary policy decision, while the effective rate measures the conditions actually observed in the interbank market.

Therefore, the rise in the monthly average in October does not correspond to a new tightening decided during that month. It primarily reflects the incorporation, over an entire month, of September's increase.

For financial markets, the notable aspect of October is less about the 3.88% level and more about the Fed's decision to pause its rate hikes, despite two of its members calling for further tightening.

This combination of resilient economic activity, still elevated inflation, and divergences within the FOMC places upcoming economic data at the center of future monetary decisions.