Fed Holds Rates Steady Amid Internal Division

The Federal Reserve kept interest rates unchanged in July amid slowing inflation
and a rare split among committee members over the future direction of monetary policy.

Content

Monetary Policy

Internal Split

Monetary Policy

In a widely anticipated move, the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve decided during its July meeting to maintain the federal funds rate unchanged, keeping the upper limit at 5.50%.

This decision follows the Fed’s first rate cut since March 2020, which occurred during the previous meeting in September.
It signals a noticeable slowdown in the Fed’s monetary tightening cycle,
especially as recent U.S. economic data has shown inflation gradually easing toward the 2% target.

The Fed’s statement indicated that economic activity slowed in the first half of the year, largely due to fluctuations in net export data.
However, the unemployment rate remained low, and labor market conditions were relatively stable.

Despite this, the Fed emphasized that inflation remains relatively elevated,
justifying its cautious stance and keeping the door open for possible future policy adjustments depending on how the economic data evolves.

The Fed also reaffirmed its dual mandate:

Achieving maximum employment
Returning inflation to its 2% target over the long term

The statement noted that the Fed will continue to monitor all key economic developments, including labor market conditions,
inflationary pressures, and global financial dynamics when deciding on any upcoming rate changes.

The central bank also confirmed that it would continue reducing its balance sheet by trimming holdings of Treasury securities,
agency debt, and mortgage-backed securities as part of its policy to limit market liquidity.

Internal Split

This meeting witnessed a rare internal division within the FOMC.
Two members—Michelle Bowman and Christopher Waller—opposed the decision and favored a 25-basis-point rate cut.
It was the first such split recorded since 1993.

This internal divergence reflects increasing uncertainty within the Fed.
Members have differing views on the strength of the U.S. economy and the risks of future economic slowdown versus
the need to ensure inflation fully returns to the 2% target.

The Fed reiterated that future monetary policy decisions will be based on comprehensive economic assessments
and that it stands ready to act if risks arise that could threaten its inflation or employment objectives.

Fed Holds Rates Steady Amid Internal Division

Fed Holds Rates Steady Amid Internal Division

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