The Federal Reserve held interest rates steady for the fifth straight meeting on Wednesday, keeping the benchmark federal funds rate at 3.5% to 3.75% as inflation pressures persist.
The vote was 9-3, with three members — Beth M. Hammack, Neel Kashkari, and Lorie K. Logan — dissenting in favor of a 25-basis-point rate increase. Fed Chair Kevin Warsh said the decision reflected the central bank's cautious approach amid what he called 'elevated' inflation driven largely by rising fuel costs linked to the ongoing US-Iran conflict.
Inflation remains sticky
CME FedWatch data had forecast a 66.3% probability of a hold, with a 33.7% chance of a rate increase. The decision follows holds in January, March, April, and June, after three successive 25-basis-point cuts in September, October, and December of last year. Consumer prices have proven stubbornly resistant to the Fed's previous tightening cycle, with energy costs rising sharply as tensions in the Middle East disrupt oil markets.
Political pressure mounts
President Trump has publicly called for the Fed to lower rates, arguing that borrowing costs are too high for businesses and consumers. But Warsh and other Fed officials have stressed that they will not be swayed by political pressure and will base decisions solely on economic data.
GDP grew at a 1.5% annualized rate in the second quarter, down from 2.1% in the first quarter, suggesting the economy is cooling. However, trade deficits and the drag from the Iran conflict are creating headwinds that make the Fed's path forward uncertain. Markets now expect the first rate cut to come no earlier than the September meeting, barring a sharp downturn.