Fed Leaves Rates Unchanged; Policymakers Dissent in Favour of a Rate Hike

• The Federal Reserve held interest rates steady on Wednesday, July 29, 2026, a choice that may intensify questions about how U.S. central bank chief Kevin Warsh will deliver on his commitment to bring inflation back down to the 2% target.
• The widely expected decision to leave ‌the benchmark interest rate in the 3.50%-3.75% range drew dissents from three of the 12 members of the policy-setting Federal Open Market Committee who "preferred" a quarter-percentage-point hike at this meeting.
• Warsh, who took over as head of the Fed in May, has said he has "no tolerance" for inflation that has been running above the central bank's target for more than five years, and up until last month was accelerating as the war in the Middle East pushed up global ⁠fuel and food prices, and investment in data centers and other spending tied to artificial intelligence drove up demand.
• The Fed highlighted that 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." Warsh said in a press conference following the FOMC announcement that "we've begun a new chapter, and we understand that the five-plus years of inflation above target cannot be cured in nine weeks, or by a single month of modest price decreases. This Fed will not waver" on getting inflation back to the 2% target.
• The number of officials voting in favour of tighter policy suggests a change in Fed thinking, even though some analysts think the central bank can still hold off on hikes.” Warsh has said little about the mix of risks and nothing about the outlook for the policy rate, though he has expressed the expectation that rising productivity aided by AI will allow the economy to grow faster without also ⁠pushing up inflation.
• Financial markets ahead of this week's meeting had priced in about a one-in-three chance of a rate hike and, absent such a move at this week's meeting, nearly a 100% chance of an increase in September. By then, Fed policymakers will have in hand two more monthly readings on inflation and the jobs market, giving them a better picture of whether the cooling price pressures evident last month have continued.

(Source: Reuters)