As military tensions between the U.S. and Iran escalate and Brent crude oil prices briefly surpass $100, the U.S. Federal Reserve has decided to keep interest rates unchanged.
On July 29, the Federal Open Market Committee (FOMC) voted to maintain the current benchmark interest rate at 3.50% to 3.75%. In the vote, 9 out of 12 members supported the decision to hold rates steady, while three members—Lorie Logan (Dallas), Neel Kashkari (Minneapolis), and Beth Hammack (Cleveland)—advocated for an increase.
Prior to the announcement, market expectations leaned toward a rate hold, although confidence waned slightly the day before. On the morning of the announcement, the FedWatch tool indicated a 66.3% probability of a rate hold and a 33.7% chance of a rate hike. This was a decrease from the previous day, when the probabilities were 69% for a hold and 31% for a hike.
This marks the second rate decision since Kevin Warsh took office as chair. NBC News noted that discussions around rate increases have emerged amid a deepening purchasing power crisis due to inflation. The current rate has been in place since December of last year, and some experts have suggested that a rate hike may be necessary to curb rising prices. Lorie Logan, president of the Dallas Federal Reserve Bank, stated earlier this month that rates should be “modestly” increased, citing that inflation exceeding target levels has constrained American households.
However, the consumer price index (CPI) for last month showed a year-over-year increase of 3.5%, which was seen as a positive factor for the decision to hold rates steady. CNBC reported that this figure was lower than expected, compared to a 4.2% increase in May. Additionally, the recent decline in international oil prices, which had previously surged above $100 following U.S. military actions against Iran, also contributed positively to the decision.
Economically, raising interest rates can dampen demand and lower inflation. However, AP noted that the ongoing conflict with Iran has disrupted energy supplies, limiting the effectiveness of such measures. Vincent Reinhart, a former Federal Reserve economist, remarked that while the Fed recognizes inflation is above target, much of the cause is beyond its control.
President Donald Trump, who appointed Warsh, has consistently emphasized the need for lower interest rates, which may add pressure on Warsh and FOMC members. In a recent NBC interview, Trump stated that raising rates would undermine success, asserting there is no reason to increase rates and that they should be lowered. CNBC reported that despite Trump's comments, the surge in energy prices due to the Iran conflict has created a complex situation for Warsh and the Fed. Furthermore, new tariff measures being pursued by the Trump administration are also expected to impact prices in the second half of the year.
If inflation continues to rise steadily, the Fed may still consider increasing interest rates later this year. The next FOMC meeting is scheduled for September 15-16, with two inflation reports expected to be released prior to the meeting, according to the Wall Street Journal. The newspaper also suggested that if rates rise around the time of the midterm elections in November, it could lead to tensions between the Trump administration and Warsh.
* This article has been translated by AI.
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