Fed holds rates at 3.50–3.75% as inflation remains above 2% target

The US Federal Reserve kept its benchmark interest-rate target unchanged at 3.50–3.75% on Wednesday, extending its pause for a fifth consecutive meeting as inflation remained above the central bank’s 2% target.

The Federal Open Market Committee voted nine to three to maintain the target range, a decision that was broadly expected by financial markets. The announcement was released at 1am on Thursday, July 30, in Thailand.

The Fed said the decision was intended to support its employment and price-stability objectives while maintaining sufficient liquidity in the banking system.

Three policymakers seek rate increase

The decision was not unanimous. The presidents of the Federal Reserve banks of Cleveland, Dallas and Minneapolis supported raising the target range by a quarter of a percentage point.

All three had also dissented at Jerome Powell’s final meeting as Fed chair in April, when they backed removing language suggesting that interest rates were likely to fall in the future.

Kevin Warsh took office as Federal Reserve chair in May, succeeding Powell.

Warsh had previously made clear that he would not accept inflation remaining above the central bank’s target, after more than five years of above-target price growth. The latest decision could therefore increase pressure on his efforts to return inflation to 2%.

Economy remains solid despite uncertainty

The Fed described US economic growth as strong despite uncertainty linked to the conflict in the Middle East.

Business investment and productivity growth remained healthy, while employment continued to expand broadly in line with growth in the labour force. The unemployment rate was little changed.

However, the central bank acknowledged that inflation remained elevated relative to its 2% target. It attributed part of the pressure to supply shocks that had pushed up prices in several sectors, including energy, and reaffirmed its intention to return inflation to target.

The US dollar weakened against the euro following the announcement. The euro rose 0.3% to US$1.1419.

US stocks also reduced their earlier losses, although the S&P 500 remained down 0.18% in the latest trading cited after the decision.