Fed Leaves Rates Steady

The Federal Reserve left the federal funds rate unchanged at 3.50%–3.75% for a fifth consecutive meeting in July 2026, in line with expectations, despite markets assigning roughly a one-in-three probability to a rate hike. Notably, three FOMC members dissented, preferring to raise the policy rate by 25 basis points, which leaves the door open to a rate increase in September. The central bank noted that economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little. Inflation remains elevated relative to the 2% goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The central bank reiterated its commitment to deliver price stability.

The Federal Reserve is widely expected to leave the federal funds rate unchanged at 3.50%–3.75% for a fifth consecutive meeting in July 2026. However, the decision remains a close call, with markets assigning nearly a 30% probability to a rate hike. Policymakers continue to navigate heightened uncertainty driven by renewed tensions between the US and Iran and elevated oil prices, even as inflation has come in softer than expected and the labor market has remained resilient. US inflation eased to 3.5% in June, marking its first decline in five months. Investors will closely monitor both the voting split which has highlighted growing divisions within the Federal Reserve, and Chair Warsh's second press conference for clues about the likelihood of a rate hike in September. Markets are currently pricing in roughly a 77% probability of an increase at that meeting. Chair Warsh has repeatedly emphasized that restoring price stability remains the Federal Reserve's foremost priority.

Fed Chair Warsh said policymakers remain fully committed to restoring price stability and have no tolerance for persistently elevated inflation, according to prepared remarks released ahead of his Semiannual Monetary Policy Report to Congress. Warsh added, "If we get policy right - and we will - the inflation surge of the last five years will be a thing of the past". The Fed Chair also said the US economy continues to expand at a solid pace, demonstrating resilience despite recent developments. Household consumption is growing at a moderate rate, while manufacturing output has risen steadily this year. He highlighted business investment as the economy's most notable strength, driven largely by the construction of data centers and robust demand for AI-related equipment and software. On the labor market, Warsh noted that job creation has kept pace with labor force growth, the unemployment rate remains low while nominal wages continue to post solid growth.