The Federal Reserve maintained interest rates at 4.25%-4.50%, with the market focusing on the prospect of a September rate cut.
2025-07-31 02:31:12
At 2:00 AM Beijing Time on July 31, 2025, the U.S. Federal Reserve (Fed) announced it would maintain the target range for the federal funds rate at 4.25%-4.50%, in line with market expectations. This was the fifth consecutive time the Fed has kept interest rates unchanged, reflecting its cautious approach to high inflation and the uncertainty surrounding the Trump administration's tariff policy.
In the resolution, two directors appointed by Trump - Christopher Waller and Michelle Bowman - voted against it, advocating a 25 basis point interest rate cut. This is the first time in more than 30 years that two directors have dissented, which has attracted widespread attention in the market.
Fed statement: Economic slowdown, inflation wording unchanged
The Federal Reserve's statement noted that economic activity growth slowed in the first half of 2025, and inflation remained "somewhat elevated," but unemployment remained low and the labor market was solid. The Fed's mid-July "Beige Book" reported that prices rose in all Federal Reserve Districts from late May to early July, partly due to higher costs from the Trump administration's tariffs. The Fed emphasized that "uncertainty about the economic outlook remains elevated," posing risks to both inflation and employment targets.
Nick Timiraos, the "Federal Reserve mouthpiece," said the wording in the first two paragraphs of the statement was in line with expectations, but without significant modification. In particular, the wording on inflation had not changed since the June meeting, and "inflation remains somewhat high" showed the Fed's vigilance about the risk of accelerated price increases and the failure of inflation to return to the 2% target.
Uncertainty about tariff policies has prompted the Federal Reserve to prioritize ensuring price stability and hold off on cutting interest rates.
Market reaction: US dollar strengthens, interest rate cut expectations diverge
After the resolution was announced, the US dollar index (DXY) rose 0.55% to 99.433, the euro fell 0.53% against the US dollar to $1.148325, the US dollar rose 0.51% against the Swiss franc to 0.80955 Swiss francs, and the US dollar rose 0.18% against the Japanese yen to 148.825 yen.
U.S. interest rate futures show traders see a 68% chance the Federal Reserve will cut rates by at least 25 basis points in September and a 65% chance of a December rate cut.
Market analysts said that Wall Street generally expects two interest rate cuts in 2025, totaling 50 basis points, with September as the possible time for the first rate cut.
Analyst Isabelle said that due to the resilience of the labor market and price pressures caused by tariffs, the Federal Reserve may only cut interest rates by 25 basis points in December, and the number of rate cuts this year may be fewer than market expectations.
Internal divisions and tariff policy challenges
The dissenting votes of Waller and Bowman show that the differences within the Federal Reserve on the policy path have intensified. The two believe that the current policy is too tight and that more relaxed measures are needed to cope with the economic slowdown.
Pressure from the Trump administration to cut interest rates and uncertainty surrounding tariffs have kept the Federal Reserve on the sidelines. With the job market robust, the Fed prioritizes mitigating inflation risks stemming from tariffs. This divergence is rare in 30 years and reflects the Fed's difficult balance between inflation and economic growth.
Analyst Isabelle said: "The resilience of the labor market and the price pressures caused by tariffs have made the Fed tend to wait and see, and it may only cut interest rates once this year." The Fed's concern that tariff policies may push up inflation has made it more cautious about cutting interest rates.
Outlook: September meeting and data are key
The market is closely watching Powell's subsequent statements and the Jackson Hole Global Central Bank Annual Meeting in late August to determine the timing of a rate cut. If July's CPI and employment data slow, the probability of a September rate cut could increase further; however, if tariffs push up prices, the Fed may delay action. The Fed's cautious rhetoric and internal divisions suggest that future policy will be highly data-dependent.
In the resolution, two directors appointed by Trump - Christopher Waller and Michelle Bowman - voted against it, advocating a 25 basis point interest rate cut. This is the first time in more than 30 years that two directors have dissented, which has attracted widespread attention in the market.
Fed statement: Economic slowdown, inflation wording unchanged
The Federal Reserve's statement noted that economic activity growth slowed in the first half of 2025, and inflation remained "somewhat elevated," but unemployment remained low and the labor market was solid. The Fed's mid-July "Beige Book" reported that prices rose in all Federal Reserve Districts from late May to early July, partly due to higher costs from the Trump administration's tariffs. The Fed emphasized that "uncertainty about the economic outlook remains elevated," posing risks to both inflation and employment targets.
Nick Timiraos, the "Federal Reserve mouthpiece," said the wording in the first two paragraphs of the statement was in line with expectations, but without significant modification. In particular, the wording on inflation had not changed since the June meeting, and "inflation remains somewhat high" showed the Fed's vigilance about the risk of accelerated price increases and the failure of inflation to return to the 2% target.
Uncertainty about tariff policies has prompted the Federal Reserve to prioritize ensuring price stability and hold off on cutting interest rates.
Market reaction: US dollar strengthens, interest rate cut expectations diverge
After the resolution was announced, the US dollar index (DXY) rose 0.55% to 99.433, the euro fell 0.53% against the US dollar to $1.148325, the US dollar rose 0.51% against the Swiss franc to 0.80955 Swiss francs, and the US dollar rose 0.18% against the Japanese yen to 148.825 yen.
U.S. interest rate futures show traders see a 68% chance the Federal Reserve will cut rates by at least 25 basis points in September and a 65% chance of a December rate cut.
Market analysts said that Wall Street generally expects two interest rate cuts in 2025, totaling 50 basis points, with September as the possible time for the first rate cut.
Analyst Isabelle said that due to the resilience of the labor market and price pressures caused by tariffs, the Federal Reserve may only cut interest rates by 25 basis points in December, and the number of rate cuts this year may be fewer than market expectations.
Internal divisions and tariff policy challenges
The dissenting votes of Waller and Bowman show that the differences within the Federal Reserve on the policy path have intensified. The two believe that the current policy is too tight and that more relaxed measures are needed to cope with the economic slowdown.
Pressure from the Trump administration to cut interest rates and uncertainty surrounding tariffs have kept the Federal Reserve on the sidelines. With the job market robust, the Fed prioritizes mitigating inflation risks stemming from tariffs. This divergence is rare in 30 years and reflects the Fed's difficult balance between inflation and economic growth.
Analyst Isabelle said: "The resilience of the labor market and the price pressures caused by tariffs have made the Fed tend to wait and see, and it may only cut interest rates once this year." The Fed's concern that tariff policies may push up inflation has made it more cautious about cutting interest rates.
Outlook: September meeting and data are key
The market is closely watching Powell's subsequent statements and the Jackson Hole Global Central Bank Annual Meeting in late August to determine the timing of a rate cut. If July's CPI and employment data slow, the probability of a September rate cut could increase further; however, if tariffs push up prices, the Fed may delay action. The Fed's cautious rhetoric and internal divisions suggest that future policy will be highly data-dependent.
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