Benchmark Rate Held at 4.25~4.5% for Fifth Consecutive Time
Two Members Support Rate Cut Amid Trump Pressure
Powell: "Need to Monitor Tariff-Driven Inflation"
Hawkish Remarks Push September Rate Hold Odds to 34%
The US Federal Reserve (Fed) kept its benchmark interest rate unchanged for the fifth consecutive time on the 30th (local time), as widely expected, despite pressure from President Donald Trump to cut rates. The Fed reaffirmed its existing policy of maintaining a cautious approach to monetary easing, citing the need to closely monitor the impact of tariffs, even amid the possibility of an economic slowdown and recent trends of price stability. When Fed Chair Jerome Powell did not clarify the direction of interest rates for September, the market interpreted this as a 'hawkish' (preference for monetary tightening) stance, quickly lowering expectations for a rate cut.
Additionally, in this meeting, two Fed board members categorized as 'pro-Trump' cast dissenting votes against the majority decision to keep rates unchanged. Analysts suggest that President Trump's public pressure for rate cuts is causing internal divisions within the Fed and impacting monetary policy decisions.
Fed Sets Benchmark Rate at 4.25~4.5% Annually... First Multiple Dissenting Votes at FOMC in 32 Years
Immediately following its regular Federal Open Market Committee (FOMC) meeting, the Fed announced in its policy statement that it had decided to keep the federal funds rate unchanged at 4.25~4.5% per year. As a result, the benchmark rate has remained steady at all five FOMC meetings held since President Trump took office this year. The interest rate gap with South Korea remains at 2.0 percentage points at the upper end.
In its statement, the Fed said, "Uncertainty regarding the economic outlook remains high," and added, "The Committee is attentive to both sides of its dual mandate (price stability and full employment)." The Fed further assessed, "The unemployment rate remains low and the labor market is still solid," and "The inflation rate remains somewhat elevated."
In this meeting, the Fed revised some of its wording, reflecting a more cautious view of the economy than before. Unlike the June meeting, where it stated, "Economic activity continues to expand at a solid pace," this time it said, "While changes in net exports are affecting the data, recent indicators suggest that the pace of economic activity growth moderated in the first half of the year." Regarding economic uncertainty, the previous phrase "has diminished but remains elevated" was changed to "remains elevated," indicating a more conservative stance.
In particular, unlike the unanimous decision to hold rates steady in June, two members opposed maintaining the current rate at this meeting. This is the first time in 32 years that multiple dissenting votes have occurred within the Fed against the majority opinion. The dissenting votes came from Fed Vice Chair Michelle Bowman and Fed Governor Christopher Waller, both of whom supported a 0.25 percentage point rate cut. Vice Chair Bowman was directly appointed by President Trump, and Governor Waller is mentioned as a candidate for the next chair, thus both are considered pro-Trump figures. Accordingly, there is growing assessment that President Trump's pressure for rate cuts is causing divisions within the Fed.
Powell: "Rate Path Undecided"... Hawkish Remarks Lower Expectations for September Cut
In the press conference following the FOMC, Chair Powell said regarding the direction of the benchmark rate in September, "No decision has been made yet," and added, "We will consider all additional information we obtain by then." He diagnosed that the labor market faces downside risks but "still looks solid," and assessed that inflation remains above the target level. The market had hoped for clues about a possible rate cut in September, but Powell's cautious remarks were interpreted as hawkish, weakening expectations for a cut.
Regarding the impact of tariff-induced inflation, Powell said it would need to be monitored further. He explained, "The impact of tariffs is starting to be more clearly reflected in the prices of some goods, but we need to see how this will affect overall economic activity and prices," noting that both a one-off and a prolonged impact on inflation due to tariffs are possible.
He described the current level of monetary policy as "moderately restrictive," adding, "It is not holding back the economy and appears to be at an appropriate level." Although two members opposed holding rates steady and called for a cut, Powell judged that it is premature to resume monetary easing at this point.
Following Powell's remarks, the market immediately lowered expectations for a rate cut in September. According to CME FedWatch, the probability of a rate hold in September jumped from 18% the previous day to 33.8% currently. With the expectation that the current rate level will be maintained for some time, Treasury yields rose. The US 10-year Treasury yield, the global benchmark for bond rates, rose 3bp (1bp=0.01 percentage point) from the previous trading day to 4.37%, while the 2-year Treasury yield, sensitive to monetary policy, climbed 6bp to 3.94%. The New York stock market ended mixed, giving up earlier gains after Powell's press conference. The Dow Jones index fell 0.38% from the previous day, the S&P 500 index dropped 0.12%, and only the Nasdaq index rose by 0.15%.
Brett Kenwell, US investment analyst at eToro, said, "The Fed will continue to rely on economic data at the next meeting," and predicted, "To cut rates, there needs to be confidence that the rise in inflation is a one-off and will continue to fall over the next few months or quarters. The labor market must also not show any significant weakening."
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