On Wednesday afternoon (July 30th) local time, the Federal Reserve announced it would maintain its policy interest rate at 4.25%-4.50%. This decision not only sparked heated discussions among investors about future monetary policy, but also significantly reduced market expectations for a September rate cut due to Fed Chairman Powell's cautious stance. Furthermore, US President Trump's strong calls for a rate cut contrasted sharply with the Fed's prudent stance, further exacerbating market uncertainty.

1. Behind the unchanged interest rate: the Fed's cautious choice

1.1 Policy interest rate stabilized at 4.25%-4.50%

At its July 30th meeting, the Federal Reserve decided to maintain its benchmark overnight interest rate in the range of 4.25%-4.50%. This marked the fifth consecutive time the Fed has maintained interest rates unchanged, demonstrating its cautious approach in the current economic environment. In its policy statement, the Fed noted that the US economy currently exhibits a robust labor market and slightly rising inflationary pressures, but economic growth is projected to slow in the first half of 2025. This "slowdown" is cited as one reason to potentially support future rate cuts, but the statement also emphasized that uncertainty in the economic outlook remains high, and the Fed needs to strike a balance between its inflation and employment goals.

1.2 Dual Considerations of Inflation and Employment

The Federal Reserve's primary priorities are maintaining price stability and achieving maximum employment. While the US unemployment rate remains low at 4.1% and the labor market remains solid, inflation has recently risen slightly, particularly with prices of some heavily imported goods rising rapidly. The Fed's policy statement explicitly stated that inflationary pressures and uncertain economic growth make now an inappropriate time for a hasty interest rate cut. Powell further emphasized at the press conference that the Fed is closely monitoring new policies of the Trump administration, such as changes in import tariffs, which could further push up prices and increase inflation risks.

2. Powell's cautious stance: The probability of a September rate cut has dropped sharply

2.1 Powell’s conservative attitude towards interest rate cuts

Federal Reserve Chairman Powell struck a cautious tone at a post-meeting press conference, dampening market confidence in a September rate cut. He stated that the Fed is still in the early stages of observing the impact of Trump's new policies on inflation, employment, and economic growth. The Fed will have two full months of data to analyze before its next meeting on September 16-17, but whether this data will be sufficient to prompt a rate cut remains unclear. Powell emphasized, "We have not made any decisions about September, and the current moderately restrictive level of monetary policy is appropriate." This wait-and-see approach caused market expectations for a rate cut to plummet from nearly 70% before the meeting to less than 50%.

2.2 Impact of Trump’s policies

Powell specifically noted that new import tariffs and other policies introduced by Trump since taking office could put upward pressure on prices. These policy changes have led the Federal Reserve to adopt a more cautious approach in formulating monetary policy. Powell stated that the Fed's responsibility is to control inflation, not to directly respond to Trump's desire to lower government borrowing or mortgage costs. This clear demarcation demonstrates the Fed's continued adherence to its independence in the face of political pressure.

3. Policy differences emerge: a rare "split" within the Federal Reserve

3.1 Two directors vote against

The Federal Open Market Committee (FOMC) voted 9-2, a rare outcome for the consensus-driven Fed. Vice Chairman Bowman and Governor Waller, both appointed by President Trump, favored a quarter-percentage-point cut in the federal funds rate. This split marked the first time in over 30 years that two Fed governors voted against the decision, highlighting the divergent views within the Fed on the direction of monetary policy. Notably, Governor Kugler was absent from the meeting and did not vote.

3.2 Significance of a negative vote

Typically, dissenting FOMC members release a statement on the Friday following the meeting, detailing their reasons for the vote. Bowman and Waller's dissenting votes may reflect their optimism about the current economic situation or be influenced by Trump's calls for a rate cut. This internal disagreement has added further uncertainty to the market and has led investors to reassess the Fed's future policy path. The US dollar index surged over 1% on Wednesday, reaching a high of 99.98, a high since May 29th. Spot gold fell 1.55% on Wednesday, hitting an intraday low of $3,268.02 per ounce, a new low since June 30th.

IV. Market Reaction and Economic Outlook

4.1 Market sentiment is dampened

Powell's cautious tone and the conservative wording of the Fed's policy statement had a significant impact on the market. Following the meeting, U.S. Treasury yields rose, and the S&P 500 and Dow Jones Industrial Average closed slightly lower. Investors' reduced expectations for a September rate cut directly contributed to the fluctuations in market sentiment, with some investors beginning to rebalance their portfolios to prepare for a prolonged period of high interest rates.

4.2 The key role of economic data

Data released earlier that day by the U.S. Department of Commerce showed that U.S. economic growth exceeded expectations in the second quarter of 2025, primarily due to a decline in imports, while domestic demand grew at its slowest pace in two and a half years. This data further reinforces the Federal Reserve's cautious stance. In the coming weeks, the Fed will closely monitor inflation data, employment reports, and the actual impact of Trump's new policies. These data will be key to determining whether to cut interest rates in September.

5. Trump’s Request for Interest Rate Cuts and the Independence of the Federal Reserve

5.1 Pressure from Trump

Since taking office on January 20, 2025, Trump has repeatedly publicly criticized the Federal Reserve and Powell, claiming they have failed to lower government borrowing costs through interest rate cuts. He argues that lowering interest rates can stimulate economic growth and ease fiscal pressures. However, the Federal Reserve's statutory mandate is to maintain price stability and maximum employment, not to directly serve the government's fiscal needs. Powell made it clear at a press conference that the Fed's policy decisions are based on economic data, not political pressure.

5.2 Powell's Bipartisan Stance <br/>A bipartisan figure, Powell was initially appointed to the Federal Reserve Board by Obama and later promoted to Chairman by Trump. At this meeting, he joined three other Federal Reserve Board members and five regional Federal Reserve Bank presidents in supporting the decision to maintain interest rates, demonstrating the Fed's independence in the face of external pressure. This stance not only maintains the Fed's credibility but also provides greater flexibility for future monetary policy.

Conclusion: The Fed’s wait-and-see approach and market expectations

The Fed's decision to hold interest rates steady, combined with Powell's cautious stance, clearly signals that in the face of inflationary pressures and economic uncertainty, the central bank is adopting a data-driven, wait-and-see approach. Rare internal disagreements, Trump's calls for a rate cut, and volatile market reactions have combined to create a complex picture of the current economic landscape. Economic data over the next two months will be a key factor in determining whether a rate cut will occur in September.