Once again, the US Federal Reserve (Fed) maintained the target range for the federal funds rate at 4.25% to 4.50%. In its press release, the Fed notes that 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. The unemployment rate remains low, labor market conditions remain solid, and inflation remains somewhat elevated.

CIBC Capital Markets says today’s decision to hold rates steady was expected, “but not everyone on the Committee was happy about that … The changes to the statement were not major, and included acknowledgements of weaker activity and high uncertainty. What’s changed since the FOMC met in June? We’ve got confirmation from the GDP report this morning that domestic demand is decelerating, the job market still remains ok but at the same time, price pressures are starting to heat up and effective tariff rates could be higher.”

“The big question Fed Chair Powell will have to answer today is, will the economy lose steam faster than tariff-induced inflationary pressure builds, and is there any material risk to inflation expectations drifting higher in an economy that is slowing? His answer before has been that they do have time on their hands to wait. But the dissenting doves got some support with the soft underlying details of today’s GDP report. While that won’t be enough to change the equation and Powell’s stance, the next set of data, including Friday’s job report and the next inflation prints, are going to be make-it-or-break it for some members that are sitting on the fence. Our anticipation is the economy will show it is bending, but not breaking, and the Fed will end up easing close to the end of the year.”

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