FOMC Holds Fed Funds Rate Steady as Economic Uncertainty Remains Elevated

The Federal Open Market Committee kept the target range for the federal funds rate unchanged at 4.25% to 4.5%, citing continued economic uncertainty even as the labor market remained resilient.

"Although swings in net exports continue to affect the data, recent indicators suggest that growth of economic activity moderated in the first half of the year," policymakers said in the statement. "Uncertainty about the economic outlook remains elevated."

The decision came after the government released data hours earlier, showing that the average growth rate in the first half of the year slowed to 1.25%. That's a percentage point weaker than a year earlier, according to a Bloomberg report. Declining imports helped the U.S. economy grow at an annual rate of 3% in the second quarter.

Imports surged in the first quarter as companies brought their shipments forward ahead of the imposition of tariffs implemented by the Trump administration. That resulted a 0.5% contraction in gross domestic product in the first three months of the year.

"Higher tariffs have begun to show through more clearly to prices of some goods, but their overall effects on economic activity and inflation remain to be seen," Powell told reporters in a press conference. "A reasonable base case is that the effects on inflation could be short lived, reflecting a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent, and that is a risk to be assessed and managed."

For the second quarter, gross private investment declined 15% in the second quarter, the worst in more than three years.

As Wall Street expected, Fed officials Michelle W. Bowman and Christopher J. Waller voted against keeping the rates unchanged, and instead said they preferred to lower the target range a quarter percentage point.

Here's what changed in the Fed statement from their previous meeting in June.

Before the FOMC meeting ended, traders were pricing in near certainty that policymakers will keep interest rates at their current rate at the end of its two-day meeting Tuesday, according to the CME FedWatch tool.

After the Fed decision, the FedWatch tool showed that traders were pricing in a 63.7% probability of a rate cut in in the September meeting of the FOMC, higher than 57.9% chance before the FOMC meeting ended.

This morning, data from ADP showed private employers added 104,000 jobs in July led by a resurgence in services except for education and health. That’s higher than the 76,000 expected by economists surveyed by Bloomberg.

“Our hiring and pay data are broadly indicative of a healthy economy,” ADP Chief Economist Nela Richardson said in the report. “Employers have grown more optimistic that consumers, the backbone of the economy, will remain resilient.”

While he acknowledged that the unemployment rate has stayed "roughly stable," Powell said the fact that the labor market is in balance due to declines in both supply and demand for workers is "suggestive of downside risk, so we, of course, will be watching that carefully."

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