Fed leaves rates unchanged; three policymakers dissent in favour of a hike
Washington, Jul 30, 2026
Warsh, who took over as Fed chair in May, has said he has "no tolerance" for inflation that has remained above the central bank's 2 per cent target for more than five years
The US Federal Reserve held interest rates steady on Wednesday, a decision that may intensify questions about how US central bank chief Kevin Warsh will deliver on his commitment to bring inflation back to the 2 per cent target.
The widely expected decision to leave the benchmark interest rate in the 3.50-3.75 per cent range drew dissents from three of the 12 members of the policy-setting Federal Open Market Committee (FOMC), who "preferred" a quarter-percentage-point rate hike at this meeting.
The same three policymakers — the presidents of the Cleveland, Dallas and Minneapolis Federal Reserve banks — had also dissented at Jerome Powell's final meeting as Fed chair in late April, when they favoured removing the implied promise of lower interest rates.
Warsh, who took over as Fed chair in May, has said he has "no tolerance" for inflation that has remained above the central bank's 2 per cent target for more than five years. Until last month, inflation had been accelerating as the war in the Middle East pushed up global fuel and food prices, while investment in data centres and other spending linked to artificial intelligence (AI) boosted demand.
"Inflation remains elevated relative to the Committee's 2% goal," the Fed said in a brief policy statement after the conclusion of its two-day meeting. It repeated, word for word, the assessment contained in the June 17 statement.
The Fed said economic activity is "expanding at a solid pace", noting, as it did in June, that job gains "have kept pace with the workforce, and the unemployment rate has changed little".
US stocks pared losses after the statement was released, while yields on US Treasuries trimmed gains. The dollar fell against a basket of currencies.
"At this stage, I think we should expect the FOMC to hike rates by 25 basis points in September unless the labour market data collapses, or core inflation prints closer to 2% annualised, which I do not expect in the July or August readings before the September FOMC," said Omair Sharif, founder and president of forecasting firm Inflation Insights.
By keeping the policy rate unchanged at the level maintained since December, Fed policymakers signalled that current borrowing costs are creating enough restraint in the economy to curb inflation that is not expected to fade on its own, such as the impact of tariffs on goods prices.
Warsh has said little about the balance of risks or the future path of interest rates, although he has expressed the view that productivity gains driven by AI will allow the economy to grow faster without fuelling inflation.
Ahead of this week's meeting, financial markets had priced in about a one-in-three chance of a rate hike and, in the absence of such a move, nearly a 100 per cent probability of an increase in September. By then, Fed policymakers will have two more monthly readings on inflation and the labour market, giving them a clearer picture of whether the cooling in price pressures seen last month has continued.
[Reuters]
