Federal Reserve Chair Kevin Warsh holds a press conference after the Federal Open Market Committee meeting on Wednesday (local time). [AP]
Federal Reserve Chair Kevin Warsh holds a press conference after the Federal Open Market Committee meeting on Wednesday (local time). [AP]

The US Federal Reserve held its benchmark interest rate at 3.50–3.75% on Wednesday (local time).

The Fed announced the decision to maintain rates following the conclusion of its regular Federal Open Market Committee meeting that day.

It was the fifth consecutive hold, following pauses in January, March, April and June this year, and the second straight hold since Chair Kevin Warsh took office.

The decision passed 9-3 among the 12 FOMC members, a departure from the unanimous vote to hold rates at the June meeting, and laid bare divisions within the committee.

The Fed said three members — Beth Hammack, Neel Kashkari and Lorie Logan — dissented, each calling for a 0.25 percentage point rate increase.

The dissents reflect renewed armed conflict between the United States and Iran, which has sent international oil prices surging and intensified inflationary pressure domestically. Interest-rate futures markets had priced in roughly a one-in-three chance of a surprise rate hike at the meeting, just before the decision was announced.

The Fed's June FOMC projections had forecast one rate increase within the year. With rates held again, markets expect a 0.25 percentage point hike at the September FOMC meeting.

The Fed's monetary policy statement was nearly identical to the one issued after last month's meeting, differing only in one phrase, the vote tally and the identification of the dissenting members who favored a hike.

The Fed said economic activity "continues to expand at a solid pace, even as uncertainty has risen amid Middle East conflicts and other factors."

It added that productivity gains and capital investment remain strong, job growth is keeping pace with the labor force, and the unemployment rate has changed little.

The Fed also said inflation "remains elevated relative to the FOMC's 2 percent objective, reflecting in part supply shocks that have pushed up prices in certain sectors, including energy," and pledged that "the Committee will achieve price stability."

At a press conference following the rate announcement, Warsh said, "There is only one goal, and that is 2 percent."

The Fed pursues maximum employment and price stability as its dual mandate. Warsh's remarks signaled the central bank's focus on reining in domestic inflation driven by the global energy supply shock stemming from the war with Iran.

Warsh said the past five years of high inflation had left "a hard-to-shake false impression among some households, businesses and market participants that the Fed's implicit inflation target is higher than 2 percent," and added, "There is no relaxed inflation target."

President Donald Trump, who has consistently pressed for rate cuts, appeared unlikely to be satisfied with the Fed's decision to hold.

Asked by reporters at the White House whether he was disappointed in Warsh over the hold, Trump said, "No. Kevin is fantastic. He's an outstanding, smart person."

Trump added, "He has a board," and said that while Warsh would want to cut rates, "he has a political board, and they want to keep rates high" — a swipe at the board members who have opposed rate cuts.

Meanwhile, the Fed's decision to hold rates keeps the gap between US and South Korean benchmark rates at 1.00 percentage point, based on the upper bound of the US range.

The Bank of Korea's Monetary Policy Board raised its benchmark interest rate by 0.25 percentage points, from 2.50% to 2.75%, on July 16.


mokiya@heraldcorp.com