US Federal Reserve Keeps Interest Rate at 3.5% to 3.75%

The Federal Reserve (the U.S. central bank) kept interest rates unchanged on Wednesday, maintaining the target range at 3.5% to 3.75%, for the fifth consecutive time. This marks the second decision by the Fed since its new chairman, Kevin Warsh, took office.

In a statement following the conclusion of the Federal Open Market Committee (FOMC) meetings, the Fed said: “The Committee decided to maintain the target range for the federal funds rate at 3.5 percent to 3.75 percent,” in support of the Federal Reserve’s dual mandate.

It noted that the Committee “continues its policy of maintaining ample reserves in the banking system.”

The decision was made by a vote of nine in favor of keeping the interest rate range unchanged, with three votes against.

The Fed clarified that “economic activity has expanded at a strong pace, despite high uncertainty partly stemming from the conflict in the Middle East.”

It also pointed out that productivity and capital investment growth rates “remain strong,” and that “job gains have kept pace with labor force growth, and the unemployment rate has remained largely unchanged.”

However, it emphasized that inflation “remains elevated relative to the Committee’s 2 percent target, partly reflecting supply-side shocks that have led to higher prices in certain sectors, including energy,” and affirmed that the Committee “will work to achieve price stability.”

Prior to the Fed’s decision, U.S. Treasury bond yields rose, ending a three-day decline, as crude oil prices climbed amid renewed tensions in the Middle East.

The yield on the 10-year U.S. Treasury note—the benchmark for U.S. government borrowing—rose by more than 3 basis points to 4.641%.

The yield on the 2-year Treasury note, which more closely reflects the Fed’s short-term interest rate policy, increased by more than 4 basis points to 4.324%, while the yield on the 30-year Treasury bond rose by 2 basis points to 5.116%. One basis point equals 0.10%, and yields and prices move in opposite directions.

On the economic data front, investors are awaiting tomorrow’s release of the U.S. Personal Consumption Expenditures (PCE) price index for June, the Fed’s preferred measure for tracking inflation, along with second-quarter gross domestic product (GDP) data for the current year.

Market expectations had largely anticipated that interest rates would remain unchanged. Data from the CME FedWatch Tool showed that approximately 64.2% of investors expected the Fed to hold rates steady at its fifth meeting this year, while 35.8% anticipated a rate hike.