[Update] Fed Holds Benchmark Rate; 3 Members Advocate 25bp Hike

Supply Shocks, Including Energy, Drive Up Inflation

The U.S. Federal Reserve (Fed) kept the benchmark interest rate steady at 3.50% to 3.75% on the 29th (local time). However, three members of the Federal Open Market Committee (FOMC) called for a 0.25 percentage point increase, underscoring clear internal divisions regarding inflation.

Fed July Statement

After concluding its two-day regular FOMC meeting, the Fed announced in a statement that it would maintain the current target range for the benchmark rate. The decision was made with a 9-to-3 vote.

Beth Hammack, President of the Federal Reserve Bank of Cleveland; Neel Kashkari, President of the Federal Reserve Bank of Minneapolis; and Lorie Logan, President of the Federal Reserve Bank of Dallas, cast dissenting votes, insisting that the benchmark rate should be raised by 0.25 percentage points. The fact that three committee members expressed a minority opinion in favor of a rate hike in a single meeting suggests heightened concern within the Fed regarding a potential resurgence in inflation.

The Fed assessed that the U.S. economy continues to show robust expansion despite heightened uncertainty stemming from the Middle East conflict. It noted that productivity growth and capital investment remain strong, and that job gains are keeping pace with labor force growth. The unemployment rate, they added, has seen little change.

Regarding prices, the Fed determined that inflation remains elevated relative to its 2% target. The statement pointed out that supply shocks—especially those driving up prices in some sectors including energy—are pushing inflation higher. The Fed reaffirmed its commitment to "achieving price stability," reiterating its determination to bring inflation under control.

This decision comes as rising international oil prices and supply chain instability—driven by the Middle East conflict—have introduced new variables into U.S. inflation trends. With the economy and labor market remaining strong, the additional pressure from supply shocks appears to be fueling calls within the Fed for a proactive rate hike.

The Fed also announced it would continue to maintain sufficient reserve balances within the banking system. The interest rate paid on reserve balances will remain at 3.65%, while the standing overnight repurchase agreement (repo) rate stays at 3.75% and the reverse repo rate at 3.50%.

This content was produced with the assistance of AI translation services.