Fed holds rates steady, but 3 officials back a hike as inflation risks linger

The US Federal Reserve kept interest rates unchanged at its July policy meeting on Wednesday, maintaining the target range at 3.5%-3.75%. However, an unusually large number of dissenting votes underscored growing concern within the central bank over inflation risks.

The Federal Open Market Committee (FOMC) voted 9-3 in favour of holding rates steady. Fed officials Beth Hammack, Neel Kashkari and Lorie Logan dissented, arguing in favour of a rate hike.

The decision was largely in line with market expectations, though the split vote may reinforce concerns that policymakers remain uneasy about the inflation outlook, particularly as oil prices remain volatile amid the ongoing conflict in West Asia.

In recent weeks, investors have increased bets that the Fed could be forced to raise rates later this year if inflationary pressures intensify. Rising energy prices have emerged as a key risk, complicating the central bank's efforts to ensure inflation returns sustainably to its target.

The Street will keenly watch Fed Chair Kevin Warsh's press conference in sometime to look for clues on the future path of monetary policy. The appearance marks Warsh's second post-meeting press conference since taking over as Fed Chair from Jerome Powell.

Warsh has repeatedly signalled his reluctance to offer extensive forward guidance, preferring to keep policy options open and data-dependent. Since assuming office, he has also launched internal task forces focused on improving economic data collection and policy methodology, part of a broader effort to modernise the Fed's decision-making framework.

Meanwhile, US stocks declined with the Dow Jones Industrial Average shedding over 650 points, or 1.24%. The tech-heavy Nasdaq and S&P 500 also traded in the red. Earlier, the Dow fell by a steeper 1.6%, or over 850 points, as oil prices rose amid renewed tensions in West Asia.

After the July meeting, the Fed's remaining scheduled policy meetings for 2026 are set for September 16, October 28, and December 9, with each decision likely to shape expectations for rates into 2027.

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