The Federal Reserve kept interest rates unchanged at 4.25% to 4.5% in their meeting this morning ( July 31 HK time ), as inflationary concerns and political pressures outweigh immediate calls for policy easing.

In a statement, the Fed says, "inflation remains somewhat elevated. Although swings in net exports continue to affect the data, recent indicators suggest the growth in economic activity moderated in the first half of the year ."

In response to a question on the impact of the on-going trade negotiations on monetary policy, Fed chairman Jerome Powell said in a news briefing following the announcement, "it's been a very dynamic time for this trade negotiations, but we're still aways from where things settle down. There are uncertainties still to be resolved but we are learning more and more."

This follows a consensus among analysts from several financial institutions – Julius Baer, T. Rowe Price, BNY Investments, HSBC, and Bank of Singapore – that the US central bank’s Federal Open Market Committee ( FOMC ) was likely to maintain the current policy rate range of 4.25% to 4.5%, driven by a complex interplay of economic data, inflationary pressures, and political dynamics.

The reports collectively underscored inflationary pressures from tariffs, a robust labour market, and political dynamics as key factors keeping the rates on hold.

While some analysts see room for easing later this year, the latest meeting was expected to prioritize stability over action. The Fed’s focus on data-driven decisions, coupled with its need to maintain independence amid political noise, suggested that a rate hike was highly unlikely, with the current range of 4.25% to 4.5% expected to hold.

Bank of Singapore chief macro strategist Mansoor Mohi-uddin says the Fed would leave interest rates unchanged to keep curbing inflation.

Mohi-uddin argues that the Beveridge curve, which illustrates the relationship between the unemployment rate and the job vacancy rate, indicates that the Fed may need to be more wary about unemployment at the moment.

“The Federal Open Market Committee will face further pressure this year if tariffs cause stagflation, as we expect with inflation above 3%, unemployment rising from 4.1% and recession risks increasing. We thus think the Fed will make one rate cut before the end of 2025,” he says.

Dissenting views

HSBC US economist Ryan Wang echoes this view, saying the FOMC was expected to vote to keep the federal funds target range unchanged at 4.25% to 4.5%, although there could be one or more dissents in favour of a rate cut.

Wang cites the opinion by Fed governor Christopher Waller, who earlier made the case for a 25bp rate cut on the grounds that tariffs might have only a limited and temporary upward impact on PCE ( personal consumption expenditures ) inflation, with foreign suppliers and US importers absorbing much of the tariff burden.

On the other hand, Wang also cites the views of other FOMC members, led by New York Fed president John Williams and Fed governor Adriana Kugler, who recently delivered speeches endorsing a wait-and-see approach to policy rates.

“We continue to forecast 75bp of cumulative Fed rate cuts through this year and next, delivered in three 25bp steps: September, December, and next March,” Wang says.

Julius Baer’s chief economist David Kohl points to a weaker US economic outlook, suggesting that an easier monetary policy might be warranted in the second half of 2025. However, persistent inflation, potentially exacerbated by higher tariffs, complicates the Fed’s ability to cut rates. Political pressure from the White House, particularly from US President Donald Trump, who favours lower rates, adds further complexity.

Kohl emphasizes the Fed’s reluctance to signal imminent rate cuts, indicating that maintaining the current rate was the most likely outcome of the latest meeting, as the Fed grapples with balancing economic softening and above-target inflation.

Political scrutiny

T. Rowe Price’s chief US economist Blerina Uruci aligns with this view, explicitly forecasting that the FOMC would keep rates unchanged at 4.25% to 4.5%. She points to a “modestly stickier” inflation outlook, driven by tariff effects and a depreciating dollar, which reduces the likelihood of a dovish pivot at the moment.

Despite a more positive labour market and growth outlook since June, Uruci argues that the Fed, led by chairman Jerome Powell, would avoid premature rate cuts to maintain credibility, especially under political scrutiny. She suggests an October rate cut is more plausible than September, reflecting a cautious approach to inflationary risks.

BNY Investments’ chief economist Vincent Reinhart reinforces the expectation of no rate change, citing the absence of prior signals from Fed officials and recent economic data showing sustained demand momentum.

Reinhart highlights the Fed’s challenge in navigating the criticism from President Trump, who blames the Fed for economic risks. He notes that Powell might express optimism about easing in his post-meeting press conference but was likely to base any future cuts on data, particularly employment and inflation trends.