Fed Holds Rates at 3.50%-3.75% as Three Officials Dissent for a Hike

The Federal Reserve left its benchmark interest rate unchanged at a range of 3.50 percent to 3.75 percent on Wednesday, but three officials voted against the decision because they wanted to raise it. The vote was 9-3, the Fed’s statement and Reuters reported, at a meeting led by Chair Kevin Warsh, who took over from Jerome Powell in May.

The dissenters were Beth Hammack, president of the Cleveland Fed, Lorie Logan of the Dallas Fed and Neel Kashkari of the Minneapolis Fed. The Fed’s statement said each preferred to raise the target range by a quarter of a percentage point. Reuters reported that the same three had dissented at Powell’s final meeting in late April, when they favored removing language that implied lower rates were coming. The benchmark has stayed in its current range since December.

The Fed’s statement described the economy as “expanding at a solid pace” despite elevated uncertainty tied in part to the conflict in the Middle East. Job gains, it said, have kept pace with the growing labor force, and the unemployment rate has changed little. On prices, the Fed said inflation remains above its 2 percent goal, partly because of supply shocks, especially in energy. “The Committee will deliver price stability,” the statement said.

Reuters reported that inflation had been accelerating until last month, pushed by the war’s effects on fuel and food prices as well as spending on data centers for artificial intelligence. Warsh told reporters he has “no tolerance” for inflation running above target for more than five years and that “this Fed will not waver” on returning it to 2 percent. “Where necessary and appropriate, we will not hesitate to act,” he said, according to Reuters. He declined to say what comes next for rates, and said he expects productivity gains from artificial intelligence to support faster growth without adding to inflation.

Markets before the meeting had priced about a one-in-three chance of a hike on Wednesday and a high probability of one in September if the Fed did not move, Reuters said. Omair Sharif, founder of Inflation Insights, told the news service he expects a quarter-point increase in September unless labor-market data collapse or core inflation drifts toward 2 percent on an annualized basis. Kathy Bostjancic, chief economist at Nationwide, said the number of dissents showed policymakers are becoming more hawkish, though she argued the Fed could stay on hold this year because higher rates would not fix an energy-supply shock or the pull of AI investment.

After the statement and Warsh’s news conference, U.S. stocks pared earlier losses, Treasury yields gave back some of their gains and the dollar fell against a basket of currencies, Reuters reported. Two more monthly reports on inflation and employment are due before the committee meets again on Sept. 16.

For households, the decision means borrowing costs on credit cards, auto loans and many mortgages are unlikely to ease soon, and could rise if the dissenters’ view wins out. The case for waiting is that activity is solid and job growth is steady. The case for acting, which the three dissenters made with their votes, is that inflation has stayed above target long enough that patience carries its own risk.