Fed Holds Rates at 3.5%-3.75% as Three Officials Push Hike

The Federal Reserve left the federal funds rate unchanged at 3.5% to 3.75% on Wednesday, keeping the range set in December. A majority of nine Federal Open Market Committee officials, including Chair Kevin Warsh, voted to hold. Cleveland’s Beth Hammack, Minneapolis’ Neel Kashkari and Dallas’ Lorie Logan favored a 25-basis-point increase.

In its post-meeting statement, the committee described economic activity as expanding at a solid pace and cited elevated uncertainty tied in part to conflict in the Middle East. The language closely tracked the June statement and did not detail conditions for potential rate changes later this year.

At a news conference, Warsh reaffirmed the central bank’s 2% inflation goal. “There is no soft implicit target, not on this committee’s watch,” he told reporters. “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,” he added.

Before the decision, market pricing reflected roughly a one-in-three chance of a hike, following persistent inflation readings and a rebound in energy prices. Warsh indicated policymakers are watching those pressures closely.

Warsh linked recent swings in borrowing costs, especially in the bond market, to the Fed’s reduced reliance on forward guidance. “Prices reacted in real time to incoming information and the reduction in forward guidance may have been a factor,” he noted. “Markets have made decisions because we stepped back, in part, from trying to influence those markets. That doesn’t mean we take them as by dictation, but we’re observing them.”

Some officials have attributed parts of the recent inflation pickup to one-off factors, including new tariffs and conflict involving Iran. Several policymakers have voiced concern that persistent price pressures could weigh on the central bank’s inflation-fighting credibility if they linger.

Warsh avoided signaling the next policy step, emphasizing meeting-by-meeting decisions grounded in incoming data and debate within the committee. He has encouraged what he calls a “good family fight” at policy meetings where outcomes are not preset by detailed guidance.

He also committed to holding press conferences through at least the end of the year, clarifying a point that had been open during his confirmation process. On Wednesday he spoke for about 45 minutes, outlining the committee’s focus on the 2% target and data dependence.

The target range has remained in place since December.