The Federal Reserve kept its benchmark interest rate unchanged on Wednesday, signaling continued caution amid persistent inflation concerns and growing economic uncertainties stemming from global tariffs. Fed Chair Jerome Powell emphasized that the central bank is not yet ready to initiate rate cuts, dampening market hopes for monetary easing as early as September.

“There are many, many uncertainties left to resolve,” Powell stated during the post-meeting press conference. “It doesn’t feel like we are very close to the end of that process.”

No Cut Yet: Fed Maintains Hawkish Stance

The Federal Open Market Committee (FOMC) voted 9-2 to hold the federal funds rate within a range of 4.25% to 4.5%, marking the fifth consecutive meeting without a change. Notably, Governors Christopher Waller and Michelle Bowman dissented — advocating for a quarter-point rate cut — in what was the first dual dissent among Board of Governors members since 1993.

Despite some dovish voices within the Fed, Powell and the majority of the committee signaled that they remain concerned about inflation risks and are not yet convinced that policy tightening has constrained economic growth unduly.

“It seems to me, and to almost the whole committee, that the economy is not performing as though a restrictive policy is holding it back inappropriately,” Powell said.

Markets React: Dollar Surges, Yields Climb

Markets responded swiftly to Powell’s remarks. The Bloomberg Dollar Spot Index jumped 0.8% — its biggest daily gain since May — while Treasury yields climbed and the S&P 500 declined. Interest-rate futures now suggest only even odds of a September rate cut, a sharp drop from earlier expectations.

The Fed also downgraded its outlook for economic growth, citing signs that activity had moderated in the first half of 2025. This reflects a slowdown in consumer spending, which Powell described as anticipated and not necessarily worrisome.

Trump Pressure vs. Fed Patience

President Donald Trump has repeatedly pressured the central bank to cut rates, most recently predicting a reduction in September just moments before the Fed’s decision. However, the committee’s latest move underscores its independence and cautious approach — particularly as it gauges the full impact of Trump’s tariffs on the broader economy.

So far, the effects have been uneven. Tariff-related inflation remains concentrated in select categories such as apparel, electronics, and toys. Meanwhile, overall inflation has undershot expectations for five consecutive months, and unemployment fell to 4.1% in June, despite slowing immigration tightening the labor market.

Looking Ahead: Fed Navigates Fragile Terrain

Although Wednesday’s decision represents continuity in policy, it also marks an inflection point. Growing dissent within the Board of Governors, along with a fragile balance between inflation control and employment stability, indicates that the Fed’s path forward remains highly data-dependent.

The second-quarter GDP data, which showed a 3% annualized increase after a previous contraction, further complicates the outlook. Much of the rebound stemmed from businesses front-loading imports ahead of tariff deadlines — a temporary lift rather than a sign of durable momentum.

With another round of Fed meetings ahead and global trade tensions far from resolved, Powell emphasized that the central bank remains vigilant.

“We are watching the data closely,” he concluded. “We’ll adjust as necessary, but we’re not there yet.”