ING Think fed holds rates steady as three fomc members dissent 2

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Article | 29 July 2026 FX RATES UNITED STATES

Fed holds rates steady as three FOMC members dissent In what was seen as the closest Fed decision for a number of years, officials opted to keep monetary policy unchanged. Markets still think the Fed will tighten policy at some point, but with two inflation prints and two job reports ahead of the September FOMC meeting, nothing is guaranteed. We still think the Fed will end up holding policy steady well into 2027

Fed Chair Warsh announcing that rates remain on hold despite three dissenting votes

Fed holds policy rate at 3-1/2 to 3-3/4 percent The Federal Reserve has left monetary policy unchanged, maintaining the target range for the federal funds rate at 3-1/2 to 3-3/4 percent. There were three dissenters, with Beth Hammack (Cleveland Fed), Neel Kashkari (Minneapolis Fed) and Lorrie Logan (Dallas Fed) voting for an immediate 25bp rate hike. Remember they were the three that wanted the Fed to drop its “easing bias” at the April FOMC meeting. Going into today’s meeting, markets were pricing a slightly greater than one-third chance of a 25bp hike, while the Bloomberg survey suggested only 2 out of 104 economists polled expected a hike. The immediate market reaction has been a curve steepening with 2Y yields down modestly and the 10Y yield up fractionally while the dollar has softened a touch. Fed funds futures for September, which had been pricing a

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cumulative 26bp of rate hikes ahead of the decision, are now pricing 18bp.

As was the case last month, the accompanying statement was much briefer than what was published when Jerome Powell was at the helm, coming in at around half of the 320 words averaged at the last couple of Powell-led meetings. There was nothing new there with the acknowledgement of “solid” activity and “elevated” inflation with a commitment to price stability. In terms of the press conference, Kevin Warsh mentioned that he got the "good family fight" he wanted to see, but in the end, the committee opted for stability by a "large majority." He acknowledged higher nominal and real bond yields, which could perhaps be interpreted as implying the market may have done some of the work for them. Nonetheless, if inflation doesn't cool, Fed rate hikes could be part of the solution – "we will not hesitate to act".

Why they could have hiked, and why they didn’t Today’s decision was the closest call for a number of years. The rationale for a hike today can be summarised as the Fed have missed the inflation target for five years and while some progress has been made, elevated oil prices in an environment of a tight jobs market means inflation may stay higher for longer. The median dot plot from the June summary of economic projections had one hike for 2026 and with the market fully discounting a 25bp move before year-end, the question would be, why wait? Moreover, it could be seen as a statement of intent under a new Fed Chair that confirms the Fed’s commitment to price stability and helps to anchor the long end of the Treasury yield curve.

The arguments against, and why we expected a no change outcome, were that having voted to keep rates on hold in June, the data flow since then certainly didn’t strengthen the case for a hike. Consumer confidence is weak, June jobs came in at less than half what was expected with substantial downward revisions to the previous two months, and inflation data was certainly more benign than anticipated with headline prices falling 0.4% month-on-month and core inflation flat on the month. Financial conditions had tightened with the 10Y Treasury yield 15bp higher, the dollar 0.5pp stronger on a trade-weighted basis and the S&P500 1% lower with the NASDAQ down 5.5%. Nine FOMC members may well think a rate hike will be needed this year, but of those nine there is a strong suspicion that five or even six are non-voters this year. Moreover, nine others think they won’t need to raise rates and that is indeed how they voted today.

Will they hike in September? Markets ahead of today had been fully pricing a September rate hike, but again, there is a significant divergence between the…