Fed Holds Rates Steady as Hawkish Voices Grow Ahead of September Meeting

[Financial News New York = Lee Byung-chul] The Federal Reserve System (the Fed) held its benchmark interest rate steady once again. This time, however, calls for a rate hike grew louder within the central bank. Three regional Federal Reserve Bank presidents dissented, saying the benchmark rate should be raised by 0.25 percentage point. It was the first time since 2016 that three members had cast dissenting votes in the same direction on a monetary policy decision. Mark Giannoni of Barclays told the Financial Times (FT) that "the FOMC maintained a hawkish hold stance."

On the 29th local time, the Federal Reserve held a meeting of the Federal Open Market Committee (FOMC) and decided to keep the benchmark rate unchanged at 3.50% to 3.75% a year. In its statement, the Fed cited solid U.S. economic growth and a stable labor market as the reasons for holding rates steady.
The Fed said that "economic activity has been expanding at a solid pace despite elevated uncertainty stemming from the conflict in the Middle East." It also assessed that job gains are keeping up even as the labor force shrinks, while unemployment remains stable with little change. Still, apparently mindful that inflation remains above target, the Fed did not add any new language on the inflation outlook and kept its existing line that "the Committee is committed to achieving price stability."

Those who argued for a rate hike at this FOMC meeting were Beth Hammack, president of the Federal Reserve Bank of Cleveland, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, and Lorie K. Logan, president of the Federal Reserve Bank of Dallas. In a statement released after the meeting, the Fed said they had favored raising the benchmark rate by 0.25 percentage point at this meeting. They have repeatedly said that additional tightening is needed given inflation that has remained above the Fed's 2% target for more than five years.
Kay Hay, chief investment officer for fixed income and liquidity solutions at Goldman Sachs Asset Management, told CNBC that "the fact that as many as three members dissented against this rate hold shows that hawkish sentiment inside the Fed is strengthening" and that "the recent escalation in armed conflict in the Middle East may also have reinforced that mood."
At a press conference that day, Fed Chair Kevin Warsh described the FOMC meeting as a "good family fight." He stressed that while there were differences over the rate decision, there was broad agreement among members on the goal of price stability and the policy tools needed to achieve it. He added, "This meeting has further strengthened my confidence that we are a team that can win the fight against inflation."
Diverging views on the direction of rates have already emerged inside the Fed. John Williams, president of the Federal Reserve Bank of New York, said current monetary policy alone is enough to bring inflation back to target. By contrast, Lorie K. Logan said that "a modest additional rate hike is needed," while Beth Hammack has also emphasized the need for tighter policy, saying persistent price increases are weighing on households.

In the press conference, Warsh reaffirmed that achieving the 2% inflation target remains the Fed's top priority. He said, "The Fed does not have a loose inflation target. The only target is annual inflation of 2%." He added, "High inflation that has persisted for more than five years is not something that can be solved quickly, but the Fed will not waver." He also stressed, "The Fed's credibility depends on achieving price stability."
Warsh also noted that market rates have risen in both nominal and real terms since the previous meeting. He said, "Even though the Fed held the benchmark rate steady, financial conditions are already moving in a tighter direction," adding that "this shift is giving the Fed some degree of relief."
Market attention is now turning to the FOMC meeting on Sept. 15-16. Two consumer price index reports due before then are seen as key variables that will determine the path of rates. Kurt Lewis, a former senior adviser to the Fed at Piper Sandler, told the WSJ that "the bar for the Fed to take additional action this year is not very high" and predicted that "if price pressures come in stronger than expected over the next two months, the Fed will move to raise rates."




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