The Federal Reserve held its benchmark interest rate steady at a range of 4.25% to 4.50% on Wednesday for the third consecutive time, but growing signs of economic deceleration and rare internal dissent are fueling expectations that a rate cut could arrive as soon as September.
For the first time since 1993, two members of the rate-setting Federal Open Market Committee—Governors Michelle Bowman and Christopher Waller—broke ranks and voted in favor of a rate cut, a sign of shifting sentiment within the Fed.
“What you want is a clear explanation, and we had that today,” said Fed Chair Jerome Powell, addressing the unusual dual dissent. “People thought carefully about this and put their positions out there.”
Powell emphasized that no decisions have been made about the September meeting. “We don’t do that in advance,” he said, while noting that a “modestly restrictive policy seems appropriate” for now. He acknowledged economic uncertainties but said they remain broadly unchanged since the Fed’s last meeting.
Nigel Green, CEO of global financial advisory firm deVere Group, said Wednesday’s pause was expected but underscored a shift in tone. “The decision to hold doesn’t shift the path. The Fed has likely just bought itself eight more weeks before a pivot,” he said, predicting the central bank will move to cut in September.
Powell addressed concerns about tariffs’ potential inflationary impact, stating they have exerted “pressure on some goods,” though he cautioned that the broader effects remain unclear. “A reasonable base case is a short-lived tariff inflation impact,” he said, “but possible inflationary effects could be more persistent.”
On the labor market, Powell acknowledged that risks are emerging. “The downside to the labor market are certainly apparent,” he said. “The main number you have to look at is the unemployment rate.”
Analysts say the Fed’s characterization of economic conditions as having “moderated in the first half of the year” signals a pivot to a more dovish stance.
“The rate-setting committee has set the stage to take action at the next meeting,” LPL Financial’s Chief Economist Jeffrey Roach said. “If economic conditions weaken, the committee will likely cut rates by a quarter point in September.”
deVere’s Green warned investors not to be lulled by headline resilience. “There’s a difference between momentum and endurance.
“Right now, we’re seeing the tail end of stimulus-driven resilience, but not a broad-based expansion.”