The Federal Reserve met at the end of July, and rates stayed right where they've been for the fifth meeting in a row, in the 3.50% to 3.75% range. Underneath that outcome, though, three regional Fed presidents voted against the decision, preferring a rate increase instead. That's the first time in nearly a decade that three policymakers have dissented in the same direction at once.
Stocks slipped in the hours following the announcement, and longer-term bond yields moved higher as investors reassessed how much pressure is building inside the Fed to raise rates sooner than expected. While it’s not a reason for alarm, it does show that a steady rate doesn't necessarily mean a settled Fed.
Chairman Warsh has been vocal about wanting to bring inflation down and has said as much in recent testimony before Congress. At the same time, he's moved away from the Fed's old habit of giving markets a lot of advance signal about where rates are headed next. That combination (more focus on inflation paired with less guidance on timing) is part of why last month's meeting felt harder to read than usual.
June inflation results came at 3.5% vs. an expected 3.8%, while core CPI (less food and energy) came in at 2.6% vs. an expected 2.9%. July continued that trend, with headline CPI easing to 3.4% and core CPI down to 2.5%, both landing right in line with what economists expected. With inflation tracking close to forecasts, the Fed should have more room to hold off on raising rates rather than feeling pressure to act.
Looking ahead to the fall, the Fed's next meeting isn't until mid-September. Between now and then, Warsh is expected to speak at the Jackson Hole economic symposium in late August, which could offer more insight into his thinking. The bigger question the Fed itself had raised was what the summer's inflation data would show, and July's report gave a reassuring answer. In addition, the July jobs report unexpectedly showed a contraction of 23,000 jobs while the unemployment rate remained at 4.1%. This reading should provide less upward pressure on the Fed.
Beyond inflation and jobs, corporate earnings have played a significant role in this year's market strength. Corporate earnings have played a significant role in this year's market strength. Second quarter profits for S&P 500 companies are on pace for one of the best quarterly gains in nearly five years, and the vast majority of companies that have reported so far have topped analyst estimates. Strong earnings have helped markets stay resilient through ongoing questions around Iran, inflation, and AI-related spending.
For your own plan, moments like this are why we build in flexibility ahead of time rather than reacting to any single headline or data point, so you're not left guessing what the Fed will do next.
