For the fifth consecutive meeting without a rate change, the Federal Reserve declared on July 30, 2025, that it would keep its benchmark federal funds rate between 4.25 and 4.50%. Chair Jerome Powell stressed a cautious, data-driven approach, emphasising that future economic data, not political pressure, will determine interest rates.
Powell reiterated the Fed’s dedication to independence and policy discipline in the face of mounting pressure from former President Trump and other political leaders to lower rates. He specifically mentioned the uncertainty surrounding tariff-driven inflation and cautioned that taking hasty action could jeopardise long-term price stability.
Notably, two governors Michelle Bowman and Christopher Waller dissented, urging an immediate quarter-point rate cut due to worries about a contracting labour market. The fact that this is the first dual dissent since 1993 shows how the committee’s internal debate is intensifying.
A mixed picture emerges from economic indicators: Q2 GDP grew 3%, exceeding projections, but consumer spending is slowing and labour markets are cooling, as evidenced by recent declines in payroll growth. In the meantime, rising tariffs contributed to the Core PCE Price Index, the Fed’s preferred measure of inflation, rising to 2.8% in June, well above its 2% target.
The market’s reaction was muted: Treasury yields slightly increased and the dollar strengthened, while stocks fell as investors reduced their expectations for a rate cut in September. The likelihood of a cut in September has decreased from almost 65% to roughly 45%, according to analysts including Deutsche Bank.
Top Fed officials, such as Atlanta Fed chief Raphael Bostic and New York Fed President John Williams, continue to characterise the labour market as strong but cautious, putting more data ahead of changing monetary policy. Later in 2025, if inflation continues to cool and there are additional indications of a soft labour market, the Fed may lower interest rates.
In conclusion, the Fed’s decision to maintain rates is a result of economic uncertainty that balances growth and inflation risks while reaffirming a methodical, data-driven approach to future policy changes.
