Fed Holds Rates Steady Amid Diverging Views on Cuts

The U.S. Federal Reserve’s Federal Open Market Committee (FOMC) maintained the federal funds rate at 4.25–4.50 percent following its July 29–30 meeting, marking the fourth consecutive decision to hold rates steady since December 2024 [1]. The central bank cited ongoing economic uncertainties, including persistent inflation, geopolitical tensions, and trade-related market volatility, as key factors in its decision [1]. Despite signs of slowing economic activity in the first half of 2025, the labor market remains strong, with low unemployment and elevated inflation continuing to weigh on the Fed’s considerations [1].

The decision was not unanimous, with FOMC members Michelle W. Bowman and Christopher J. Waller advocating for a 25-basis-point rate cut [1]. However, the majority of the committee opted for a wait-and-see approach, consistent with expectations set by the CME FedWatch tool, which showed 98 percent of participants anticipating no rate change [1]. Nearly all analysts had also forecasted the Fed would maintain the current rate [2].

The decision came in the context of a stronger-than-expected Q2 GDP reading of 3 percent annualized, exceeding the 2.3 percent forecast [1]. This figure prompted U.S. President Donald Trump to criticize the Fed on Truth Social, calling the growth “WAY BETTER THAN EXPECTED!” and urging an immediate rate cut [1]. Trump labeled Fed Chair Jerome Powell as “Too Late” and suggested the central bank act in the absence of inflationary pressures.

The FOMC’s Summary of Economic Projections revealed a split among policymakers regarding future rate moves. Seven members expect no rate cuts in 2025, while eight anticipate two 25-basis-point reductions [1]. This division reflects the uncertainty around the timing and magnitude of potential monetary easing. Goldman Sachs suggested the September meeting could still see a cut, but emphasized that Powell is likely to wait for more data on inflation and employment before making a decision [1].

Market expectations point to a 65 percent chance of a 25-basis-point cut in September, according to the CME FedWatch tool, with 34 percent anticipating no action and only 1 percent expecting a 50-basis-point cut [1]. These expectations underscore the cautious optimism that a cut remains a possibility, though not an immediate certainty.

The Fed’s decision reaffirms its data-dependent approach, balancing short-term economic pressures with long-term price stability goals [1]. With the September meeting now expected to be a key turning point, the FOMC will continue to monitor incoming data to guide its next steps.

Source:

[1] https://www.moneycontrol.com/news/business/markets/federal-reserve-leaves-interest-rate-unchanged-in-july-meeting-13353262.html

[2] https://www.moneycontrol.com/news/business/us-fed-meeting-live-updates-fed-interest-rate-outcome-jerome-powell-speech-gdp-inflation-us-stock-market-liveblog-13352709.html