The Fed holds on, despite three dissents
The Federal Open Market Committee voted to maintain the federal funds rate at 3.50-3.75% following its July policy meeting, matching our call and consensus expectations.
The primary initial takeaway stemmed from the vote split, with Hammack, Kashkari, and Logan all preferring to raise rates by 0.25%. Aside from recognising this division, the policy statement was otherwise unchanged, retaining the pared-back form introduced by Chair Warsh in June and offering no new information.
Similarly, Chair Warsh’s press conference was again light on policy detail, with forward guidance absent entirely.
The Chair repeated prior comments, suggesting that he was looking for a “good family fight” amongst the Committee, framing the three dissents in that light. Granted, Warsh also appeared to hint that the move higher in yields since June helped inform the Committee’s latest decision to leave rates unchanged, but that is hardly setting out an explicit reaction function either.
The result is that markets remain uncertain on the path ahead for rates. While market-implied probability of a hike by September has dipped post-event, these odds now stand at just over 50%, after fully pricing a rate increase by that date pre-meeting.
The dollar has followed suit, shedding around 0.6% as traders digest the decision and the press conference.
Looking ahead, we see few signs that elevated energy prices are translating into broader price pressures. Meanwhile, we think the totality of indicators continues to signal a fragile labour market, even if this is not immediately apparent in official statistics at present. As such, we continue to predict no change in the federal funds rate through the remainder of 2026, which, if correct, should pose a modest but sustained dollar headwind.