US Federal Reserve holds rates at 3.5-3.75% for fifth meeting as three officials dissent, backing a hike

The decision

The Federal Reserve held its benchmark interest rate steady on Wednesday, keeping it in the 3.5% to 3.75% range for the fifth consecutive meeting. The vote was 9-3 in favour of the pause, a departure from June's unanimous decision. Three members of the Federal Open Market Committee preferred a quarter-point increase, signalling growing restlessness with inflation that remains above the Committee's 2% target.

The move keeps the rate where it has been since the start of the year, following three 25-basis-point cuts during 2025 that brought it down from the 5.25-5.50% peak reached during the 2022-2023 tightening cycle.

“Inflation remains elevated relative to the Committee's 2 percent objective, reflecting in part supply shocks that have driven price increases in certain sectors, including energy.”

The dissent and what it signals

The three dissenting votes represent the first open split on the FOMC since Kevin Warsh succeeded Jerome Powell as Fed chair in May. Warsh, nominated by President Donald Trump, has adopted a harder line on inflation than his predecessor while refusing to offer explicit forward guidance. His second meeting as chair was marked by what analysts described as greater opacity, ending the practice of telegraphing future rate moves.

In June, inflation moderated to 3.5% year-on-year, down from 4.2% in May and below the 3.7% forecast. Unemployment edged down to 4.2%, though job creation slowed. The Committee noted that economic activity continues to expand at a solid pace, with strong productivity growth and capital investment, despite what it called elevated uncertainty stemming partly from the Middle East conflict.

Pressure from the White House

Trump renewed his push for rate cuts on Monday, arguing that other countries maintain lower rates and that the United States should be among the world's lowest-rate economies. The president repeatedly criticized Powell before backing Warsh's nomination to lead the central bank.

The decision to hold rates places Warsh in a difficult position. A cut would risk painting him as bowing to White House pressure while potentially reigniting inflation. A hike would challenge Trump directly but carries its own risks: the inflationary pulse is being driven more by the energy supply shock from the Strait of Hormuz blockade than by overheating domestic demand.

Energy and geopolitics

The conflict with Iran, launched in February as a joint US-Israeli military campaign, has complicated the Fed's calculus. Tehran's renewed closure of the Strait of Hormuz and Houthi militia blockades on Saudi crude pushed Brent crude up 6.6% on Wednesday to around $90 a barrel, roughly 20% above its February level. Supply-chain disruptions have fed through to gasoline, transport, and other goods.

A five-day pause in hostilities ended on Tuesday with renewed escalation, hours before the FOMC convened. The AI-driven investment boom has added a further layer of price pressure, keeping inflation above the 2% objective for more than five years.

What comes next

Wall Street voices increasingly expect the Fed will be forced to raise rates before year-end, possibly at its 16 September meeting. Warsh has given no public signal about timing. His predecessor Powell remains on the Board of Governors. Christopher Waller, another governor, opened the door to further hikes this month, citing a likely rise in inflation.

The pause keeps the Fed on a narrow path between two threats: an inflation rate stuck above target and a president demanding cheaper money. Three dissenting votes suggest that path is narrowing.