In its July 29–30 meeting, the Federal Open Market Committee voted to maintain the federal funds rate at 4.25‑4.50%, opting for a cautious approach in the face of inflationary pressures linked to new tariffs. The decision marks the fifth straight session without a rate change.
Fed Chair Jerome Powell reiterated the central bank’s data‑dependent strategy, stressing that policymakers need more evidence on how newly imposed import duties are influencing consumer prices before considering any easing. Powell told lawmakers that while tariffs may initially result in a one‑time price increase, there is a risk they could become more persistent, potentially unanchoring inflation expectations—a scenario the Fed must guard against.
Minutes from an earlier June meeting highlighted the internal split among Fed officials: some viewed tariff‑driven price upticks as temporary, but others warned of deeper risks and urged caution about prematurely lowering interest rates.
That divergence surfaced in the July vote, with two Fed Governors—Christopher Waller and Michelle Bowman—dissenting and urging for a rate cut of 25 basis points to ward off potential economic softening. Both dissenters downplayed the inflation risks tied to tariffs and emphasized concerns about signs of weakening in the labor market—particularly softer payroll growth and a slight uptick in the unemployment rate to 4.2% in July.
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Those dissenting votes were notable: it was the first time since 1993 that two members of the Board of Governors simultaneously opposed a rate decision, underscoring growing internal friction over the Fed’s path forward.
Meanwhile, the broader economic picture offered mixed signals. Although U.S. growth came in at an estimated 1.2% annualized pace during the first half of 2025, second‑quarter GDP surprised on the upside with a 3% gain. Yet consumer spending softened, and the housing market continued to struggle under elevated borrowing costs. Inflation remained above target, with core Personal Consumption Expenditures (PCE) rising roughly 2.8–2.9% year over year, partly driven by higher costs for appliances, apparel, and furniture tied to tariff effects.
Market sentiment swiftly adjusted after the decision. Traders scaled back expectations for a September rate cut, with futures pricing dropping to approximately a 50–65% chance of any easing that month, and only one cut fully priced in by May 2026. Asset markets responded with a modest dip in equities, a slight rise in Treasury yields, and a firmer dollar.
Former President Donald Trump intensified criticism of Powell, calling him a “stubborn MORON” in social media posts and urging the Fed’s board to override his leadership if rate cuts weren’t forthcoming. Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick echoed the sentiment, accusing the Fed of overplaying tariff‑related inflation fears and slowing down growth with high interest rates.
Powell, in turn, defended the Fed’s independence and commitment to its dual mandate of price stability and maximum employment. He emphasized that premature rate cuts risk reversing hard‑won progress in reanchoring inflation expectations—and could undermine long‑term economic stability if tariffs continue to feed into prices over time.
Looking ahead, the Fed plans to revisit policy at its upcoming September, October, and December meetings, with markets closely watching labor market data and latest inflation readings to gauge whether conditions will support a pivot to rate easing later in 2025.
