The Federal Open Market Committee (FOMC) voted to keep the federal funds rate target range unchanged at 3.50%–3.75%. There were three dissents from Presidents Hammack, Kashkari and Logan, all in favor of a rate hike.

Changes to the FOMC Statement:

• After a significant rewrite in June, the July FOMC statement was unchanged
• On the economy, activity is still described as expanding at a “solid pace,” despite elevated uncertainty in the Middle East. Job gains “kept pace with the workforce,” and the unemployment rate was little changed. Productivity and capital investment were still characterized as “strong.” Inflation remains above the Federal Reserve’s (Fed) goal, driven by “supply shocks that have driven price increases in certain sectors, including energy”.
• On the appropriate path for monetary policy, the statement continued to reiterate that “the Committee will deliver price stability”
• The statement re-affirms the current balance sheet policy to “maintain ample reserves in the banking system”.

Key Quotes from Chair’s Press Conference:

• “For some households, businesses, and market professionals, five years of high inflation has left a mistaken impression that's hard to shake, but the Fed's implicit inflation target was somehow above 2%. Let me reiterate. There is no soft inflation target. There is no soft implicit target. Not on this committee's watch. There's only a target and it's 2%.”
• “As before, the policy statement conveys just the facts. It's steering clear of forecasting, a choice we consider especially prudent at these uncertain times. Uncertainty, however, does not mean a lack of clarity.”
• “Two economic developments are worth highlighting. Nominal and real yields are materially higher across the Treasury curve. In the intervening period, market attention centered on real data and real economic developments. Prices reacted in real time to incoming information and the reduction in forward guidance may have been a factor. Market participants are learning to play the ball, not the referee, and market prices will continue to respond in the direction and "magnitude they see fit. This is, in my view, a change for the better, and we're just getting started.”
• “A second economic development is one that I noted at the Congressional oversight hearings this month, but it's worth repeating. The most striking feature of the economy is the strong growth of business investment. The surge in high-tech CapEx has been remarkable but that does not necessarily make the fed's role any easier. In the AI-related category of high-tech equipment and software, the most recent data shows four quarter growth rates of nearly 20%. This is helping to sustain the healthy momentum of manufacturing output. More generally, CapEx is preparing the ground for future growth.
• “Nonetheless, the precise timing and magnitude of effects on the supply side remain hard to predict. FOMC meetings produce policy decisions, but just as important is candid discussion of the big things that matter most. That too is a priority in this new chapter at the Fed.”
• “If inflation continues to be elevated through the forecast period, interest rates could well be part of that solution, but I wouldn't say it's in isolation.”
• “A lot of our focus was on trying to understand and identify underlying inflation dynamics amid shocks. We take these shocks seriously. There have been a series of them that have been hitting this economy. We're not looking through them and saying Oh, they don't matter, but we're trying to understand is to what extent are these shocks broadening in their effects, broadening in their impact on prices that are quite far removed from it. Our goal is to have growth that is broadening and inflation that is becoming more limited, more circumscribed. I'll be the first to admit the shocks make this job and this policy conjuncture a little tougher but it's one of the Chief questions we've asked ourselves and around the room people have different views on it. I tend to think in the coming months we're going to refine that view and have a better judgment and we're going to have market prices try to help inform it too”
• “Surprises are not the objective, but at the same time, I would say we didn't come into this meeting feeling constrained by the full range of alternatives we had in front of us.”
• “We're going to deliver 2% inflation and not a whisper more, but to achieve that, I'm looking at a broader set of inflation data than PCE”
• “What I've really been trying to do… is getting an unfiltered message from markets… letting buyers and sellers meet at prices… and then trying to judge for ourselves what does that mean about our remit? How are we doing on inflation? How are we doing on employment?”

Our View:

• The Fed held the policy rate steady as expected. While recent inflation and labor market data allowed the Fed to remain patient at this meeting, risks remain skewed toward further hikes if inflation fails to improve and the labor market stays healthy. The split in the Fed’s 2026 year-end rate projections at the June FOMC - with 9 in favor of hikes while 9 are in favor of a hold or cut - made it clear that members of the Committee are becoming increasingly uncomfortable with the elevated level of personal consumption expenditures (PCE) inflation. The three dissents from Presidents Hammack, Kashkari, and Logan at today’s meeting reinforce the view that a meaningful faction of the Committee remains inclined to tighten if inflation remains sticky. Complicating the picture further, the Fed’s preferred inflation gauge, PCE, continues to run notably hotter than the Consumer Price Index (CPI) and other trimmed-mean inflation measures.
• We maintain our base case of sub-trend growth. Real gross domestic product (GDP) averaged 2% in 2025. Growth in the first half of the year is tracking at a similar pace. Business investment in sectors such as technology and artificial intelligence (AI) remains robust but a broader capital expenditure (capex) boom outside of tech remains limited. The consumer has remained resilient, buoyed by tax refunds and the wealth effect, but faces headwinds from slowing real income growth, and a re-acceleration in energy costs.
• In recent months, we adjusted the fair value range for the 10-year U.S. Treasury higher to 4.125% – 4.625% to reflect the shifting balance of risks to the labor market, inflation and the Fed’s reaction function. Recent data suggest a labor market that remains in balance but with fewer downside risks. Inflation is expected to spend more time above target although the impact of higher energy prices still appears relatively contained to gasoline and airfares. Uncertainty around the Fed’s reaction function under new leadership also limits the scope for yields to fall meaningfully below the bottom of the range, absent a sharp deterioration in labor markets or a pickup in layoffs. Conversely, the stability of long-term inflation expectations should help limit a sustained move meaningfully above the top end of the range.

Forecasts, projections and other forward-looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecasts, projections and other forward statements, actual events, results or performance may differ materially from those reflected or contemplated.

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