Fed Makes Key Announcement in Early Morning Hours, Powell Issues Statement

At 2:00 a.m. Beijing time on July 31, the U.S. Federal Reserve announced it would maintain the federal funds rate target range at 4.25% to 4.50%, aligning with market expectations. This marks the fifth consecutive Federal Open Market Committee meeting where rate cuts were paused, and no indication was given regarding potential policy easing in September.

The rate decision itself took a backseat to notable internal divisions within the central bank. Two members dissented, advocating for an immediate 25-basis-point cut. Analysts noted this rare split among officials highlighted a breakdown in consensus over the economic implications of current tariff policies.

In a press conference following the announcement, Federal Reserve Chair Jerome Powell delivered a policy outlook with a distinctly hawkish tone. He clarified that no determination had been made concerning any policy shift in September. This statement tempered earlier expectations for a rate cut in the near term, triggering a sharp market reaction that saw major U.S. indices briefly reverse course intraday before stabilizing.

With this announcement, the Fed confirmed for the fifth straight meeting that interest rates would remain unchanged within the 4.25%–4.50% band. The decision follows three consecutive rate cuts implemented starting in September last year, which reduced the target rate by a total of 100 basis points. Since President Trump assumed office in January this year, the Fed has refrained from making any further adjustments.

Significantly, the vote to maintain the current rate level was not unanimous. Vice Chair for Supervision Michelle Bowman and Governor Christopher Waller both cast dissenting votes, each favoring a 25-basis-point cut. This marks the first instance since 1993 where two sitting Board members opposed a rate decision. According to Nick Timiraos, widely regarded as a reliable source on Fed policy, this unusual divergence underscores growing internal disagreement, particularly regarding the economic and inflationary effects of tariffs.

Bloomberg Economics Chief U.S. Economist Anna Wong commented that the disagreement within the FOMC may reflect underlying compromise among members. She suggested that the upcoming release of June core PCE inflation data and July employment figures could further widen the policy divide.

In its post-meeting statement, the Fed noted that unemployment remains low and the labor market continues to demonstrate resilience, while inflation persists at moderately elevated levels. The central bank acknowledged that economic growth had moderated in the first half of the year. Should this trend continue, it may create the basis for future policy easing. At the same time, the statement highlighted that the economic outlook remains uncertain and that both employment and inflation targets still face downside risks.

The Fed is continuing to assess how the burden of increased tariffs is being distributed across importers, retailers, and consumers, and how such policies may influence broader inflation and employment trends in the months ahead. The largely unchanged language in the policy statement reflects a cautious stance, as the Fed awaits clearer signals on the direction of macroeconomic indicators before committing to further rate adjustments.

U.S. equity markets responded swiftly following the announcement. All three major indexes saw sharp declines before partially recovering. The Nasdaq managed a late-session rebound to close up 0.15%, while the S&P 500 edged down 0.12%, and the Dow closed 0.38% lower. Among large-cap technology stocks, performance was mixed. Nvidia posted a gain of over 2%, while Microsoft and Alphabet recorded slight increases. In contrast, Apple fell more than 1%, and Amazon, Meta, and Tesla saw modest declines.

The statement also reiterated the Federal Reserve’s ongoing plan to reduce its holdings of U.S. Treasuries, agency debt, and agency mortgage-backed securities. Since April, the central bank has slowed the pace of balance sheet reduction, a key aspect of its quantitative tightening program. The monthly redemption cap for Treasuries has been lowered from $25 billion to $5 billion, while the cap for agency securities remains unchanged at $35 billion.

Attention then shifted to Powell’s remarks at the press briefing held at 2:30 a.m. Beijing time. Powell stated that despite prevailing uncertainty, the U.S. economy remains fundamentally sound, with unemployment low and the labor market at or near maximum employment. He emphasized that the Fed’s current policy stance provides ample flexibility to respond to potential economic shifts as they arise.

Powell underscored that no decision had yet been made regarding a rate move in September. He emphasized the Fed’s mandate to anchor long-term inflation expectations and to prevent transient price increases from evolving into sustained inflation. He noted that higher tariffs are beginning to exert more visible pressure on certain product prices, though their broader impact on economic activity and inflation remains uncertain.

Tariffs, Powell explained, are increasingly reflected in consumer prices and are expected to exert upward pressure on inflation readings. However, isolating the exact contribution of tariffs remains difficult. He estimated that tariffs account for roughly 30% to 40% of core inflation.

Powell’s comments led market participants to reevaluate expectations around monetary easing, resulting in higher U.S. Treasury yields. Interest rate futures indicated a lower probability of a September rate cut, with expectations falling from about 65% on Tuesday to just below 50%.

Jamie Cox, Managing Partner at Harris Financial Group, remarked that Powell is unlikely to yield to political pressure for rate cuts, prompting markets to reassess their pricing of future federal funds rate levels.

When asked about the specific data the Fed would require to support a rate cut, Powell responded that it would depend on the “totality of the evidence” available between now and the next meeting in September. He added that the Fed is prepared to take the necessary time to evaluate incoming data and evolving risks before adjusting its stance. The volume of data to be released over the coming months will help guide the Fed’s assessment of risk balance and the appropriate level for the federal funds rate.

Regarding the U.S. labor market, Powell reaffirmed its overall strength. Unemployment remains low and relatively stable over the past year. Although wage growth has slowed, it still outpaces inflation. Taken together, various indicators point to a labor market that is largely in balance and aligned with the Fed’s objective of maximum employment.

Addressing former President Trump’s recent visit to the Federal Reserve headquarters, Powell described the meeting as pleasant and respectful. He noted that while it is uncommon for a president to visit the Fed—let alone tour the building—the occasion was a positive one.