Fed Holds Rates 9-3 as Three Hawks Push Hike
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- Federal Reserve held the federal funds rate at 3.5%-3.75% in a 9-3 vote, with regional Fed presidents Beth Hammack (Cleveland), Neel Kashkari (Minneapolis), and Lorie Logan (Dallas) dissenting in favor of a quarter-point hike to address inflation above the 2% target for over five years.
- Kevin Warsh faced an early test as Fed chair after refusing to provide forward guidance, leaving markets with "an unusually high level of uncertainty"; the CME FedWatch had priced a roughly 1-in-3 chance of a surprise hike.
- The FOMC statement said economic activity is expanding at a "solid pace" despite uncertainty tied to the Middle East conflict, with job growth keeping pace even as the labor force contracted.
- Christopher Waller voted for a hold but warned higher rates could be necessary without further inflation progress; Warsh has called inflation "a choice" and stressed getting prices in check at recent Capitol Hill hearings.
- In June, the full committee penciled in one quarter-point rate increase by the end of 2026, signaling a hawkish tilt across the median policymaker.
- Donald Trump publicly backed Warsh as "fantastic" and accused other Fed officials of "bad intentions" and possible political motivations.
Why it matters: A 9-3 FOMC split is one of the more contentious votes in recent Fed history, exposing deep divisions over whether inflation—above target for more than five years and now fueled by Trump-era tariffs and Iran-linked energy costs—warrants immediate action. With markets pricing in a September hike and the June dot plot already penciling in a 2026 increase, Warsh's refusal to provide forward guidance leaves investors without a clear signal despite his stated commitment to price stability.
