Interest rate in the USA remains unchanged | Immediately: Speech by the Fed Chair
The central bank left the interest rate in the USA unchanged at 3.75%, in line with market expectations. Despite the geopolitical escalation, the latest macro data did not give the Fed a reason to rush into monetary tightening, although markets are betting on an interest rate hike in September.
The Federal Reserve announced this evening (Wednesday) its decision to leave the interest rate in the USA unchanged at 3.75%, in line with market expectations.
This is the second decision by the new Fed Chair Kevin Warsh, after the interest rate also remained unchanged at the June meeting of the Federal Open Market Committee (FOMC), with the central bank walking back the assessment that it would decrease during the current year. Warsh then emphasized his firm commitment to returning inflation in the USA to the 2% target, as well as his desire to reduce the amount of signals and forecasts that the Fed provides to the markets.
Members of the FOMC voted by a majority of 9 to 3. The three dissenters were the presidents of the regional Fed banks of Cleveland, Minneapolis, and Dallas — Beth Hammack, Neel Kashkari, and Lorie Logan — who advocated for another interest rate hike. In recent months, the three have expressed a particularly hawkish position, arguing that further monetary tightening is needed to return inflation to the 2% target, after it remained above the target for more than five years.
In the interest rate statement published by the Federal Reserve, there were almost no changes compared to the previous statement from June, reflecting its policy in recent months following the three interest rate cuts carried out in the second half of 2025.
The Fed reiterated that economic activity continues to expand at a steady pace, despite the high level of uncertainty stemming, among other things, from the conflict in the Middle East. Additionally, it was noted that the labor market remains stable, as the pace of job creation continues to keep up with the growth rate of the labor force, and the unemployment rate has barely changed — even though the American labor force has shrunk.
Similar to the previous statement, the declaration ended with the short message: "The Committee will act to achieve price stability."
On the other hand, committee members who supported an interest rate hike argued that inflation continues to weigh on households and still does not show clear signs of moderation. According to them, the recent pressure on prices stems both from the tariffs imposed by President Donald Trump and from the rise in energy prices following the conflict with Iran.
Waiting for September
Concerns about an interest rate hike later in the year still hover over the markets, which are pricing in an interest rate hike in September with a probability of nearly 80%. While the recently recorded geopolitical escalation has somewhat shuffled the cards for the Fed, the key macro data published recently did not give the central bank a reason to rush into a monetary tightening move.
The Consumer Price Index for June surprised positively with a decrease of 0.4% — significantly sharper than the analysts' consensus, who expected a more moderate decrease of 0.1%-0.2%. Thus, the annual inflation rate in the USA moderated from 3.8% to 3.5% — although it is still much higher than the Fed's price stability target (2%).
This is the first month in six years that a substantial decrease in the Consumer Price Index has been recorded, with a significant part of it stemming from the sharp drop recorded in June in global oil prices. Core inflation, which excludes volatile fuel and food prices, also remained unchanged in June, compared to expectations of a 0.2% increase.
In the labor market sector, the official employment report for June did indeed come in weaker than forecasts, with an addition of 57,000 jobs compared to expectations of 115,000 jobs, but the unemployment rate dropped slightly from 4.3% to 4.2%. Most analysts agree that the labor market remains relatively stable, as the "no hire-no fire" dynamic continues. Accordingly, most analysts estimated that the recent data is not expected to shift the central bank's focus from curbing high inflation to supporting the labor market.
