The Fed's 3.88% Rate Is Not the Painful Number It Seems

Ledger Hamilton · The Long View

The Federal Open Market Committee concluded its October meeting on October 28, 2026, leaving the effective federal funds rate at 3.88%. A year earlier, that number was 3.86%, meaning the policy rate has barely budged in twelve months despite a Consumer Price Index that rose 3.7% over the 12 months ending September 2026.

The 3.7% inflation figure is what draws the eye — and the headlines. Since 1948, the average annual CPI has been 3.52%, and over the last two decades that average drops to 2.54%. At 3.7%, today's inflation is higher than 67% of all readings since 1948, which explains the sense of unease.

But the effective federal funds rate tells a quieter story. At 3.88%, it sits above only 45% of all readings since 1954, which has averaged 4.59% over that period. The last twenty years averaged just 1.69%. The record high was 22.36% in July 1981; the record low was 0.04% in December 2011.

The 10-year Treasury yield stood at 5.05% as of October 28, 2026, higher than 47% of all readings since 1962, which has averaged 5.80%. The unemployment rate of 4.2% in September 2026 is higher than only 20% of all readings since 1948, which has averaged 5.65%.

The next FOMC meeting is scheduled for December 8-9, 2026, 40 days from now, and will include updated economic projections. Until then, the numbers suggest a policy rate that is neither at its peak nor at its trough — just comfortably in the middle of a long historical range.

The counterpoint

The usual take fixates on inflation at 3.7% as evidence of an urgent crisis, but the effective federal funds rate of 3.88% is actually below the long-term average of 4.59% since 1954.

Data: Federal Reserve Board and BLS via FRED (full history). Charts on the Markets page

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