US Federal Reserve keeps benchmark interest rates steady; markets take a hit
New York, July 30
The US Federal Reserve is keeping the benchmark interest rate unchanged at 3.5 per cent to 3.75 per cent in the face of inflation threats.
The decision on Wednesday (local time) sent stock markets tumbling, with the Dow Jones falling 1,153 points, or 2.19 per cent, and the NASDAQ down 433 points, or 1.74 per cent.
The Federal Open Market Committee (FOMC), which sets the rates, was split, with nine members voting to keep the rate unchanged, while three, Neel Kashkari of Minneapolis Federal Reserve among them, unsuccessfully pressed for a quarter-point rate hike.
The Fed's Chairman Kevin Warsh called the dissent a "good family fight" over how to tame inflation while keeping the economy steady and the job market growing.
Warsh was handpicked to lead the Fed by President Donald Trump, who had feuded with his predecessor Jerome Powell over his refusal to lower interest rates.
Now Warsh has disappointed Trump by not cutting interest rates as inflation is showing signs of spiking, fueled by Trump's Iran war and its fallout in the economy in the US and around the world.
On Wednesday, the Gulf conflict, which has been a factor in inflation, flared up again and spread to Iraq.
Speaking to reporters at the White House, Trump defended Warsh, saying he was doing a "fantastic job" and deflecting blame to the FOMC.
"I know he'd love to see lower interest rates, but he's got a board, and it's a political board, and they want to keep rates up," he said.
This was Warsh's second time presiding over the rate-setting meeting of the FOMC since he took over in May, and the rates were again held steady.
The next meeting in September will be the last before the November mid-term election.
The June Consumer Price Index report showed a rise of 3.5 per cent compared to a year ago.
After the meeting, Warsh reiterated his commitment to the goal of bringing inflation down to 2 per cent, which limits his option to lower the interest rate.
He is walking a tightrope between the twin goals of low inflation and job growth.
But, he said, "I do not believe that price stability and full employment is an either-or proposition."
He declared that "where necessary and appropriate, we will not hesitate to act".
— IANS
Reader Comments
Wait, so the Fed is keeping rates steady but markets are falling? That seems odd. But I guess the uncertainty about inflation and the Iran conflict is spooking investors. Hope this doesn't trigger capital outflows from India. 🤞
The mention of Trump's Iran war is important. Geopolitical conflicts always mess with the economy. For India, we're also impacted because of our oil imports from the Gulf. This is a global problem, not just a US one.
Honestly, I think the Fed should have cut rates. With the midterm elections coming, this will be political. But as an Indian, I'm more worried about how this impacts our IT sector and stock market. The Dow falling 1153 points is scary. 😬
I'm an American living in Bangalore and this really hits home. Warsh is in a tough spot - inflation at 3.5% and pressure from Trump to cut rates. But keeping rates steady seems prudent. The Iran situation only makes things worse. Good analysis from an Indian perspective though.
Very informative article! The split in the FOMC shows there's no easy answer here. I appreciate Warsh's comment about price stability and full employment not being "either-or." But for developing countries like India, we need to be prepared for volatility. Time to diversify investments?
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