WASHINGTON – The Federal Reserve voted Wednesday to keep its key interest rate unchanged, but not without opposition from three officials who have expressed concerns about inflation and want to raise rates.
Despite growing support for rate hikes among some officials, the Federal Open Market Committee voted 9-3 to keep the federal funds rate unchanged at 3.5% to 3.75%.
All of the “no” votes came from regional presidents Beth Hammack of Cleveland, Neil Kashkari of Minneapolis, and Rory Logan of Dallas, who have been most vocal about the need for rate hikes to combat inflation that has exceeded the Fed’s 2% target for more than five years.
In a statement after the meeting, the three opponents said they hoped to raise the target range for the federal funds rate by a quarter of a percentage point at this meeting.
Early challenges for Warsh
This is the first time since September 2016 that three policymakers have disagreed with a unified view on the direction of interest rates.
“We read this as a hawkish committee,” said Ian Lingen, head of U.S. rates at BMO Capital Markets.
The no vote was an early challenge for Chairman Kevin Warsh, who refused to provide clear guidance on the direction of monetary policy, creating unusually high uncertainty heading into the meeting.
Markets had generally expected central bank policymakers to approve an additional rate hike, but CME Group’s FedWatch tool said there was a roughly one-third chance of an unexpected rate hike. Market expectations showed a high level of confidence in the Fed.
Warsh argued that the Fed should not waste its time telling markets what it will do next, but instead emphasize the conditions under which action will be taken. But Wednesday’s statement showed neither, even though markets had largely expected the Fed to raise rates in September.
The statement after the meeting was similar to the statement after the June 17 decision, and was in line with the Fed’s actions throughout the year, following three rate cuts in late 2025.
Officials reiterated that “economic activity is expanding at a steady pace, despite heightened uncertainty due in part to the effects of conflicts in the Middle East.” The statement further said that despite the shrinking U.S. workforce, job growth “has kept pace with the labor force and the unemployment rate has remained largely unchanged.”
As in June, the statement ended with a simple declaration: “The Committee will achieve price stability.”
“Despite the recent cooling data, the Fed appears to be running out of patience with above-target inflation,” said Kay Haig, global head of fixed income and liquidity solutions and chief investment officer at Goldman Sachs Asset Management. “The committee’s growing hawkish sentiment, reflected in today’s three-member dissent to the suspension, was also likely exacerbated by the recent escalation in hostilities in the Middle East.”
Officials who support tighter policy argue that inflation is a burden on household budgets and shows no clear signs of easing. Recent price pressures reflect rising energy costs related to tariffs imposed by President Donald Trump and the Iran conflict.
The full committee in June decided on a quarter-point increase by the end of 2026.
different policy views
Governor Christopher Waller also recently expressed concerns about inflation, saying he may have to raise interest rates if there is no further progress. However, he voted in favor of holding it at this meeting.
For his part, Warsh said inflation is a “choice” and reiterated the importance of keeping prices in check during a recent hearing on Capitol Hill.
But from a policy perspective, Warsh has expressed disdain for the Fed’s past practice of providing forward guidance on interest rate expectations.
As with Mr. Warsh’s first meeting, the statement was much shorter than has become the norm. Mr. Warsh has emphasized changing the way the Fed communicates, even dedicating one of the five task forces he created to addressing the issue.
In the weeks leading up to the meeting, his FOMC colleagues had expressed differing policy views.
New York Fed Chairman Williams said he believes current policy is well positioned to bring inflation back on target. But Mr Logan countered that “moderately” high interest rates would be needed. Hammack is also an inflation hawk, pointing out that household budgets across the board are under pressure from rising prices.
Earlier this week, President Trump showed support for Warsh, calling him “fantastic” and noting that other Fed officials have “malice” and are likely politically motivated.
