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The US Federal Reserve kept interest rates unchanged on Wednesday, maintaining its benchmark rate for a fifth consecutive meeting as policymakers continued to balance persistent inflation against a resilient economy. The decision also puts renewed focus on Fed Chair Kevin Warsh’s pledge to steer inflation back to the central bank’s 2% target, even as divisions within the policy-setting committee become more apparent.
The widely expected decision to keep the benchmark interest rate in the 3.50%-3.75% range drew dissents from three of the 12 members of the policy-setting Federal Open Market Committee (FOMC), who favored a quarter-percentage-point rate hike. The same three officials — the presidents of the Federal Reserve Banks of Cleveland, Dallas and Minneapolis — had also dissented at Jerome Powell’s final meeting as Fed chair in late April, when they supported removing the committee’s implied commitment to lower interest rates.
Warsh, who took over as Fed chair in May, has repeatedly said he has “no tolerance” for inflation, which has remained above the central bank’s 2% target for more than five years. Until last month, inflation had been accelerating as conflict in the Middle East pushed up global fuel and food prices, while heavy investment in artificial intelligence infrastructure, including data centers, added to demand across the economy.
“Inflation remains elevated relative to the Committee’s 2% goal,” the Fed said in its policy statement following the conclusion of its two-day meeting. Apart from that assessment, the statement was unchanged from the one issued after the June 17 meeting.
The central bank also reiterated that economic activity is “expanding at a solid pace,” while noting that job gains have continued to keep pace with workforce growth and the unemployment rate has remained largely unchanged.
US stocks trimmed earlier losses following the Fed’s announcement, while Treasury yields pared gains. The US dollar also weakened against a basket of major currencies.
“At this stage, I think we should expect the FOMC to hike rates by 25 basis points in September unless the labor market data collapses, or core inflation prints closer to 2% annualized, which I do not expect in the July or August readings before the September FOMC,” Omair Sharif, founder and president of forecasting firm Inflation Insights, said.
By leaving interest rates unchanged at levels maintained since December, Fed policymakers signaled that they believe current borrowing costs are restrictive enough to gradually bring inflation under control, particularly as temporary price pressures, such as those linked to tariffs, are expected to ease over time.
Warsh has offered limited guidance on the future path of interest rates but has expressed confidence that productivity gains driven by artificial intelligence could allow the US economy to expand at a faster pace without generating additional inflationary pressures.
Ahead of this week’s meeting, financial markets had priced in roughly a one-in-three chance of a rate hike. With rates left unchanged, investors are now increasingly focused on the Fed’s September meeting, when policymakers will have two additional months of inflation and labor market data to assess whether recent signs of easing price pressures have been sustained.
