The US Federal Reserve kept its benchmark interest rate steady on Wednesday, with Chair Jerome Powell signalling that borrowing costs are unlikely to be cut in September unless upcoming data shows inflation is easing.
The decision, made by a 9-2 vote, keeps the federal funds rate in the 4.25% to 4.50% range for the fifth consecutive meeting. Powell said it was too early to determine the full impact of recent policy shifts, including new tariffs, and emphasised the central bank’s focus on inflation rather than government borrowing costs or mortgage rates.
Markets responded by reducing the probability of a rate cut in September to below 50%, down from nearly 70% before the meeting. Treasury yields climbed, while US equity benchmarks edged lower.
Powell said the Fed needs more evidence before adjusting policy. “If you move too soon, you don’t fix inflation. If you move too late, you hurt the labour market,” he said. Inflation remains about half a percentage point above the Fed’s 2% target, with policymakers forecasting it to end the year near 3%.
The two dissenting votes came from Vice Chair Michelle Bowman and Governor Christopher Waller, both Trump appointees, who preferred a quarter-point cut. Their opposition marks the first time in over 30 years that two Fed governors have dissented at the same meeting.
President Donald Trump has criticised Powell over delays in cutting rates. Despite pressure, Powell said the Fed’s decisions are driven by data and long-term economic stability, not political demands. The Fed’s next meeting is scheduled for September 16-17.
Economic data this week includes June inflation figures on Thursday and July’s jobs report on Friday. Earlier Wednesday, the government reported a better-than-expected GDP rebound in Q2, though it was largely due to declining imports rather than domestic demand.
In line with the Fed, the Central Bank of the UAE held its Overnight Deposit Facility base rate at 4.40%, maintaining its policy of mirroring US monetary decisions. It also kept the borrowing rate at 50 basis points above the base rate.
