The US Federal Reserve decided on July 29 to keep the federal funds rate target range unchanged at 3.5% to 3.75%. The Federal Open Market Committee (FOMC) meeting revealed significant internal divisions, with three of the 12 members voting for a 25-basis-point rate hike, marking the largest dissent since 2016.
Fed Chair Kevin Warsh reiterated the central bank's commitment to curbing inflation. Referring to recent economic data, Warsh noted that while the US June consumer price index (CPI) year-over-year increase fell to 3.5% from May's 4.2%, the level remains well above the Fed's 2% long-term inflation target. He emphasized that the Fed does not base policy on a single data point but closely monitors the long-term trend of inflation. Warsh argued that prolonged above-target inflation has imposed an unfair burden on American households and businesses.
Regarding the rate-hike demands within the decision-making body, Warsh welcomed genuine policy debate, stating that the current voting split is just the beginning of future policy direction. The US macroeconomic and monetary policy landscape is currently facing multiple complex external factors.
On the geopolitical front, ongoing turmoil in the Middle East and widespread disruption in the Strait of Hormuz continue to put upward pressure on international oil prices. Earlier on July 29, Iran launched missiles at a US military base, prompting US President Donald Trump to vow retaliation, further fueling uncertainty in global energy markets. As a result, the national average gasoline price remains nearly a dollar higher than the same period last year.
Additionally, domestic economic expectations are facing challenges. The Conference Board reported a decline in its July consumer confidence index amid an uncertain labor market outlook. In the technology sector, massive capital expenditures related to artificial intelligence, while temporarily supporting the economy, have also raised concerns about a potential asset bubble.
The Bank for International Settlements (BIS) recently warned that the potential impact of AI on economic growth and productivity is highly unpredictable, significantly complicating medium-term monetary policy formulation. Analysts suggest that despite persistent calls from the US government for rate cuts, the Fed's current stance indicates it is attempting to maintain monetary policy independence amid short-term political pressures and long-term inflation management.