The Federal Reserve holds steady, but there is internal turmoil! For the first time in over thirty years, the market is completely confused.

#Federal Reserve Interest Rate Decision The Federal Reserve FOMC meeting has once again concluded with a "hold rates steady" decision, locking the benchmark interest rate in the range of 4.25%-4.50%. This marks the fifth consecutive time that the policy has been maintained. However, unlike in the past, this meeting revealed rare policy divergences within the Federal Reserve, occurring for the first time in over thirty years. Combined with the ambiguous signals released by Powell during the press conference, the market is reassessing the Federal Reserve's policy path.
Policy Stalemate and Internal Fractures
The core of the debate is who is more important, "inflation" or "growth".
The most striking aspect of this meeting was not the decision to maintain interest rates itself, but the significant divisions that emerged during the voting process. Governors Waller and Bowman openly advocated for a rate cut, marking the first time since 1992 that two decision-makers cast dissenting votes against maintaining interest rates.
In simple terms, it can be divided into two factions: one faction believes that prices (inflation) have not yet stabilized completely, and there is still a long way to go to reach the target. If interest rates are lowered now, prices might rise again, so we should wait a bit longer; the other faction is worried that economic growth has already slowed down, and with interest rates remaining so high, it could drag the economy down, so we need to quickly lower interest rates to mitigate risks.
From the content of the statement, the Federal Reserve's judgment on the economy is becoming cautious: on one hand, it says "economic growth slowed in the first half of the year, and the outlook is uncertain," while on the other hand, it also says "prices are still a bit high."
This wording is neither different from the previous hawkish stance nor does it release clear dovish signals, highlighting the current dilemma of monetary policy—simply put, it is caught in the middle, fearing both a rebound in inflation and an economic downturn.
Powell's Art of Ambiguity and Market Reactions
Although I am used to it, the market is a bit confusing.
Powell continued his "data-dependent" narrative strategy at the press conference, emphasizing that "no decisions have been made regarding the September meeting" and frankly stating that decisions cannot be based on the June dot plot. This statement appears neutral but actually exacerbates market uncertainty.
It is worth noting that he quantified for the first time the impact of tariffs on inflation—30% to 40% of core inflation is related to tariffs. This statement not only provides an explanation for inflation stickiness but also leaves room for future policy adjustments.
The market reacted strongly to this ambiguity. After the announcement, the daily decline in gold quickly expanded to $50, the dollar index rose against the trend, the yield on the 10-year U.S. Treasury rose to 4.38%, and the U.S. stock market faced downward pressure, with $BTC Bitcoin briefly falling below $116,000. This synchronized reaction across asset classes indicates that investors are rapidly adjusting their expectations for interest rate cuts: the probability of a rate cut in September plummeted from 60% before the meeting to 49.6%, and the expectation for rate cuts for the year shrank from 44 basis points to 36 basis points.
Key variables of future policy paths
Whether the Federal Reserve will lower interest rates in the future mainly depends on three things:
1. Will prices (inflation) continue to decrease, and will the job market cool down? Powell said, "Prices are further from the target than employment," meaning that if prices are not stable, don't expect interest rate cuts; but if jobs decrease, he might have to change his mind.
2. Will the tariff policy change? Although Powell believes that the impact of tariffs on inflation is temporary, a 30%-40% share means that changes in trade policy could significantly disrupt the inflation path. If Trump suddenly raises tariffs, prices may rise again, and the Federal Reserve's plans would have to change accordingly.
3. Will the economy get worse? The meeting acknowledged the slowdown in economic growth but emphasized that the economy "is in a solid position." This contradictory statement reflects vigilance against the risks of recession, meaning that the current economic growth rate has already slowed, and if consumer spending and investment do not improve in the future, it may be necessary to prioritize growth regardless of how prices are affected.
Additionally, Trump also stated that "a rate cut is definitely coming in September." Although the Federal Reserve claims to be independent, being watched so closely likely puts a lot of pressure on them. The meeting in September will be a key turning point.
In general, the Federal Reserve is currently feeling its way through the river, hesitant to make any moves. There may be internal disagreements, but they can make policies more aligned with reality. For us, rather than guessing when interest rates will be cut, we should focus on the data: Have prices decreased? Is it easy to find a job? Is the economy getting worse? These are the key points.
The economic data over the next six weeks will determine whether there will be an interest rate cut in September. This kind of "noise" may just be the new normal for the Federal Reserve in responding to a complicated economy.