Fed Leaves Rates Steady as Expected; Gives no Indication of September Rate Cut

The central bank’s Federal Open Market Committee (FOMC) left its key rate in the same 4.25%-4.50% range as it’s been since December.

The FOMC, which conducts eight scheduled meetings a year, was widely expected to make that decision. According to the CME FedWatch tool, the probability of the central bank holding rates steady was about 98% in the hours before Wednesday’s meeting, despite the White House clamouring for lower borrowing costs. 

Uncertain outlook

As usual, the committee issued a statement that contained clues about its assessment of the state of the US economy, though it acknowledged that uncertainty about the economic outlook “remains elevated.”

The committee said recent indicators suggest that growth of economic activity moderated in the first half of the year: “The unemployment rate remains low, and labor market conditions remain solid,” it said in the statement. “Inflation remains somewhat elevated.”

No clues for September

Traders hoping for "dovish" comments that might encourage a crypto rally were left disappointed. The Fed gave no signal that it was considering a rate cut for its next meeting, which takes place on 16-17 September. 

Investors sold two-year US Treasuries, an action normally associated with rising rates (or, perhaps in this case, an expectation that rates may not decline in September) and the dollar advanced. The DXY US Dollar Index, which shows the strength of the greenback against a selection of other major currencies, increased 1% on Wednesday for its fifth straight day of gains. 

White House pressure

President Trump and some of his senior officials have advocated for lower rates as a mechanism to help stimulate the economy and weaken the dollar in denial of the higher domestic inflation that's resulting from Trump’s tariff hikes. Meanwhile, American companies have been warning of higher prices and lower earnings as their imports become more expensive as a result of Trump’s new trade levies. 

US inflation increased for the second consecutive month in June with the Consumer Price Index rising 2.7% from the prior year, according to government data released earlier this month. US GDP growth, adjusted for inflation, was 3% in the second quarter after a shrinkage of 0.5% in the previous period.

Even up to a few hours before the Fed announcement, Trump was distributing his views on the central bank's monetary policy decision-making, which is supposed to be independent. "NOW LOWER THE RATE," he posted in all-caps on his own social media platform. 

Dissenters

Contrary to Chair Jerome Powell's “wait and see” approach to maintaining rates, two dissenters – governors Christopher Waller and Michelle Bowman – had also been voicing their support for cutting rates, in the same vein as Trump (who appointed them both), and broke ranks with Powell on Wednesday. Trump has repeatedly called for Powell to quit his role because he has not slashed rates as the President thought he should.

There's now a 45% chance of the Fed reducing rates at its Septmeber meeting, according to the CME Group FedWatch tool.

Crypto assets gain this year

Crypto assets have advanced this year, fueled by new all-time highs for Bitcoin and a resurgence for altcoins early in the third quarter. The CoinMarketCap 100 Index has posted gains of more than 20%, surpassing April’s trough that occurred amid a global financial market selloff triggered by Trump’s tariff announcements. 

Bitcoin was little changed, closing the day at $117,830. Meanwhile, Ether (ETH) had posted a 0.5% gain. US equities were slightly down.