The Federal Reserve kept the federal funds rate unchanged at 3.5% to 3.75%, extending its run of unchanged policy decisions to five straight meetings. The move was widely expected, but the vote was not unanimous. The rate decision passed 9-3, with three regional Federal Reserve Bank presidents voting for a 25 basis point increase.
Three dissenters favored a quarter-point hike
Even though the benchmark rate stayed in place, the meeting produced three dissenting votes, a rare split inside the policy committee. Those officials argued that rates should be raised by one notch, or 0.25%, in response to inflation risks that remain sticky.
The post-meeting statement was broadly the same as the one issued after the June meeting. Officials again stressed their commitment to “price stability.” Still, the split vote showed that policymakers do not fully agree on whether the current restrictive stance is strong enough.
Inflation remains above target as Middle East tensions add uncertainty
According to the policy statement, the U.S. economy continues to expand at a solid pace. Productivity growth and capital investment were described as strong, while the labor market remained stable and the unemployment rate did not show major swings.
Inflation, however, is still running above the Fed’s 2% longer-run target. The statement said that part of the pressure reflects supply shocks affecting specific industries, including energy. Recent tensions in the Middle East have also driven swings in international oil prices, adding a high level of uncertainty to the economic outlook.
Fed officials said energy cost risks linked to geopolitical conflict are a main external factor making it harder for inflation to fall quickly back to target.
Warsh says future policy will be data-dependent
Fed Chair Kevin Warsh said at the post-meeting press conference that internal disagreement can help clarify the situation and that the decision came after weighing the central bank’s dual mandate. He repeated his “zero tolerance” stance on high inflation, while also saying that the path ahead will depend entirely on actual economic data.
Warsh also said the Fed is reducing overly explicit forward guidance. The idea, he said, is to push financial markets to react more to core economic indicators and less to hints from policymakers, while preserving monetary policy flexibility.
Markets had seen a chance of a hike before the meeting
Before the meeting, some economists had predicted that Warsh might unexpectedly support a rate increase. Pricing in federal funds futures showed that, in the days leading up to the decision, markets saw the odds of a hike as high as 40%.