The Federal Reserve (Fed) left its target policy rate in a range of 4.25% to 4.50%. The vote included two dissentions in favor of a rate cut, which is a rare event in the recent history of Fed meetings. Interest rate markets were not expecting a move at today’s meeting. Expectations for dissention have been growing as the evidence of tariff driven inflation has been slow to develop. 

Current Conditions – Current economic conditions were downgraded from “solid” to “moderate”. Chair Powell noted a growth rate of 1.2% in the first half of 2025, down from 2.5% last year. Labor conditions remain solid, and the Chair described labor supply and demand as balanced. Recent inflation data has been little changed since the start of the year with deceleration in services prices largely offsetting an increase in the price for goods. 

Forward Guidance – Powell believes there are still “many uncertainties” left to resolve despite the current dynamic period for trade negotiations. Customs revenues are running near a $30 billion monthly rate as a result of trade policy with price increases occurring at various stages of the supply chain and any ultimate rate of increase to consumers likely to be one-time in nature. Powell also believes monetary policy is moderately restrictive and an eventual cut in rates will be warranted with greater clarity on the effects of tariffs. 

Policy/Market Reaction – Markets expected no rate change today. Despite the multiple dissents, expectations for a cut in September were marginally lower. Stocks and bonds were lower following Powell’s press conference, and the Dollar was marginally higher. 

Gary Pzegeo, CFA , is co-chief investment officer of CIBC Private Wealth. His responsibilities include chairing the Asset Allocation Committee and overseeing the investment administration, portfolio oversight, and fixed income and equity trading functions.