Divided Fed holds interest rates steady
WASHINGTON – The Federal Reserve voted Wednesday to keep interest rates steady, but not without objections from three officials who expressed concerns about inflation and wanted to raise rates.
Despite growing support for a rate hike among some officials, the Federal Open Market Committee voted 9-3 to leave the federal funds rate in the range of 3.5% to 3.75%.
All of the “no” votes came from the regional presidents who have most clearly voiced the need for higher rates to combat inflation that has been above the Fed’s 2% target for more than five years – Beth Hammack of Cleveland, Neel Kashkari of Minneapolis and Lorie Logan of Dallas.
In a statement made after the meeting, it was stated that the three opponents “opted to increase the federal funds rate target range by ¼ percentage point at this meeting.”
The no vote posed an early challenge for Governor Kevin Warsh, who has refused to offer clear guidance on where monetary policy is heading, leading to an unusually high level of uncertainty heading into the meeting.
Markets largely expected central bank policymakers to approve a new hold on interest rates, but there was some inclination (about a 1 in 3 chance). CME Group’s FedWatch tool – A surprise interest rate increase is a possibility. Prediction markets had a higher certainty that the Fed would hold.
Warsh argued that the Fed should spend less time telling markets what it will do and instead emphasize the conditions under which it will take action. But Wednesday’s announcement did neither, even though markets largely expected the Fed to raise interest rates in September.
The post-meeting statement was almost identical to the statement made after the June 17 decision and was in line with the Fed’s actions throughout the year following three interest rate cuts in the second half of 2025.
Once again, officials said, “Economic activity is expanding at a solid pace despite increasing uncertainty resulting in part from conflict in the Middle East.” The statement also noted that although the U.S. workforce has shrunk, job growth has “kept pace with the labor force and the unemployment rate has changed little.”
The statement ended, as in June, with the simple statement that “The Committee will ensure price stability.”
Officials advocating tighter policy argued that inflation was a burden on households and showed no clear signs of abating. Recent price pressures reflect both tariffs imposed by President Donald Trump and rising energy costs tied to the Iran conflict.
In June, the full committee predicted a quarter-point increase by the end of 2026.
Governor Christopher Waller also recently expressed concerns about inflation, saying higher rates may be necessary if more progress isn’t made. However, at this meeting he voted to postpone the vote.
Warsh, for his part, called inflation “a choice” and has repeatedly emphasized the importance of keeping prices under control at recent hearings on Capitol Hill.
But from a policy perspective, Warsh expressed disdain for the Fed’s past practice of providing forward guidance on interest rate expectations.
In keeping with Warsh’s first meeting, the statement was much shorter than is now the norm. Warsh has emphasized changing the way the Fed communicates, even dedicating one of the five task forces he created to addressing the issue.
In the weeks leading up to the meeting, FOMC colleagues had expressed differing policy views.
New York Fed President John Williams said he thinks current policy is well positioned to return inflation to target. But Logan disagreed, saying “modestly” higher rates would be needed. Hammack has also been an inflation hawk, citing the pressure households generally face from persistently high prices.
Earlier this week, Trump showed support for Warsh, calling him “great,” while noting that other Fed officials were “malicious” and perhaps politically motivated.
