Fed Holds Rates Steady, More Optimistic on Growth Amid High Inflation

Federal Reserve Maintains Interest Rates at 3.5-3.75% Range

The Federal Reserve has decided to keep interest rates unchanged at its latest policy meeting, maintaining the federal funds rate target range between 3.5% and 3.75%. This marks a pause in the central bank's monetary policy adjustments following three consecutive rate cuts totaling 75 basis points in 2025. Fed Chair Jerome Powell announced the decision, noting that while inflation remains elevated, the economic outlook has improved.

'The Fed is somewhat more positive about economic growth, but they note that inflation is still too high,' said BNR's chief economist Han de Jong, analyzing the central bank's position.

Labor Market Stabilization and Inflation Concerns

The Fed's statement highlighted that the U.S. labor market, which had weakened in previous periods, is now showing signs of stabilization. This development has removed one of the key reasons for further rate cuts in the near term. According to De Jong, 'That reason to cut rates is temporarily gone,' though he expects the Fed will likely reduce rates later this year as inflation moves toward the 2% target.

Current inflation data shows core inflation around 3%, still above the Fed's target but on a downward trajectory. Powell attributed much of the recent goods price increases to tariff impacts rather than demand-driven inflation, suggesting these are temporary factors.

Internal Divisions: Two Dissenting Votes

The decision was not unanimous, with two Fed governors voting against maintaining current rates. Stephen Miran and Christopher Waller, both appointed by former President Donald Trump, dissented from the majority position. Miran advocated for a quarter-percentage-point rate cut, while Waller also supported easing monetary policy.

De Jong noted the significance of these dissents: 'When they cut rates at previous meetings, he wanted a half-percentage-point cut, so now he's apparently become somewhat more moderate too.' Regarding Waller, De Jong suggested he might be positioning himself as a potential successor to Powell: 'So you could say: with that dissenting vote yesterday, he has once again drawn attention to his candidacy for that position with Trump.'

Political Pressures and Professional Restraint

During his press conference, Powell notably avoided questions unrelated to monetary policy, particularly those concerning ongoing tensions with former President Trump. The Fed chair has faced consistent pressure from Trump to lower interest rates, but maintained professional restraint during the briefing.

'He dodged many questions,' observed De Jong, highlighting Powell's disciplined approach to staying focused on economic fundamentals rather than political considerations.

The Fed also avoided commenting on the U.S. dollar's exchange rate, deferring to the Treasury Department's jurisdiction over currency matters. This reflects the established division of responsibilities between monetary and fiscal authorities.

Market analysts are now watching for signs of when the Fed might resume rate cuts. With economic growth showing resilience but inflation still above target, the central bank faces a delicate balancing act in the coming months.

Sources: Federal Reserve Speech, LiveMint Report, CNBC Analysis