The Federal Reserve left its benchmark interest rate unchanged at 3.50%-3.75%, marking the fifth consecutive policy meeting without a rate change. While the decision was widely expected, Warsh signalled that the central bank is prepared to raise rates again if inflation remains above target.
The latest decision also represents the second straight meeting under Fed Chair Kevin Warsh in which policymakers opted to hold rates steady.
The Federal Open Market Committee (FOMC) said the US economy continues to expand at a solid pace, supported by a resilient labour market. However, inflation remains above the central bank's long-term target of 2%, requiring policymakers to remain cautious.
Three Fed Officials Favoured A Rate Hike
Although the committee kept rates unchanged, the decision was not unanimous. Three policymakers: Beth Hammack, Neel Kashkari and Lorie Logan, voted in favour of a 25-basis-point rate increase, reflecting continued concern over persistent inflation.
The split vote highlights that several officials believe higher borrowing costs may still be needed to bring inflation under control.
Warsh: 'Won't Hesitate To Act' if Inflation Persists
During the post-meeting press conference, Fed Chair Kevin Warsh stressed that the central bank remains fully committed to restoring price stability. Warsh said the Fed "won't hesitate to act where necessary and appropriate" if inflation fails to move towards its 2% target.
He described the current policy approach as one of "watchful thinking," saying officials carefully debated multiple policy options before deciding to leave rates unchanged.
Warsh also said the Fed has "no soft inflation target", adding that prolonged inflation ultimately hurts workers, businesses and the broader economy.
Fed Says Economy Remains Strong Despite Global Uncertainty
The Fed noted that economic activity continues to expand despite uncertainty linked to global geopolitical developments. Employment conditions remain healthy, with steady job gains and a low unemployment rate. However, policymakers acknowledged that inflation continues to run above target.
Warsh also pointed to rising investment in artificial intelligence, saying the AI boom is increasing infrastructure spending but could improve long-term productivity across the economy.
Gold And Silver Rise After Fed Decision
Precious metals rallied after the Fed announced its policy decision as investors reduced expectations of another interest-rate hike in September.
Spot gold climbed 1.16% to $4,075.53 per ounce, while spot silver gained 2.19% to $58.38 per ounce in late trading.
The gains came as traders interpreted the Fed's decision as less aggressive than some had feared, even though Warsh kept the possibility of future rate hikes on the table.
US Stock Markets Recover From Session Lows
Wall Street remained under pressure but recovered from its lowest levels after the Fed's announcement. The Dow Jones Industrial Average, which had fallen as much as 1.59%, recovered slightly and was trading 1.40% lower by 11:45 p.m (IST).
The S&P 500 also pared losses and was down 0.34%, while the Nasdaq recovered sharply from an earlier 1.17% decline to trade just 0.12% lower.
The market reaction suggested investors were encouraged by the Fed's decision to pause while continuing to monitor inflation closely.
What Comes Next?
The Federal Reserve said future policy decisions will depend on incoming economic data, particularly inflation and labour market trends. While the central bank chose to keep borrowing costs unchanged for now, Warsh's comments indicate that further rate hikes remain possible if inflation does not move sustainably towards the Fed's 2% target.
Investors will now closely watch upcoming inflation, employment and economic growth data ahead of the Fed's next policy meeting, which will help determine whether rates remain on hold or move higher later this year.
Also Read: US Fed Prepping For Rate Hike This Week? What Bond Market Activity Suggests
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