The Federal Reserve kept rates at 4.25–4.50% on July 30, even as two governors argued for a 25‑basis‑point cut. Despite this rare double dissent, Chair Jerome Powell’s influence remains strong. This post reviews the decision, its market fallout, and the next steps.
Key Takeaways
Rate hold and double dissent – The FOMC held the target range at 4.25–4.50%, voting 9–2. Governors Michelle Bowman and Christopher Waller called for a 25‑bp cut, marking the first double dissent in 30 years.
Solid but slowing economy – U.S. GDP grew 1.2% in the first half of 2025, down from 2.5% last year, and payroll gains averaged 150,000 per month.
Inflation and tariff risks – Headline PCE inflation rose 2.5% through June and core PCE climbed 2.7%. Chair Powell warned that tariffs could push prices up but said the effects might be temporary.
Market reaction – After the announcement, the S&P 500 slipped 0.34%, the 10‑year Treasury yield rose to 4.376% (up 4.8 bp), and the dollar index gained 0.98%.
What’s next – Traders now see less than a 50% chance of a September cut. The next FOMC meeting comes after two more months of inflation and jobs data.
On July 30 the U.S. Federal Reserve held its benchmark rate steady for the fifth straight meeting. What surprised investors was that two governors — Michelle Bowman and Christopher Waller — voted for a 25‑bp cut. It was the first time since 1993 that two Board members dissented.
Yet markets still treated Jerome Powell as the anchor. In his press conference he said the economy is “solid” but growth has slowed, and leaving rates unchanged gives the Fed time to assess data. This post explains why his hold on markets endures and what the double dissent means for policy and investors.
How the Rate Hold and Double Dissent Unfolded
Rate decision – The FOMC kept the federal funds range at 4.25–4.50%. Nine officials, including Powell and New York Fed President John Williams, supported the decision. Bowman and Waller preferred a cut. Governor Adriana Kugler was absent.
Why dissent? – Waller argued in a July 17 speech that economic momentum has slowed and risks to full employment have increased. Bowman said in June that if inflation stays contained she would support lowering rates.
First double dissent in decades – According to the St. Louis Fed, two governors had not voted against a decision since December 1993. Dissent usually comes from regional bank presidents, not Board members.
Political backdrop – President Donald Trump has repeatedly pushed the Fed to cut rates, calling Powell “Too Late” and urging cuts to 1%. Both Bowman and Waller are Trump appointees, and Waller is seen as a potential successor when Powell’s term ends.
Growth, Jobs, Inflation and Market Reaction
Growth – Powell noted that GDP expanded at a 1.2% pace in the first half of 2025 versus 2.5% last year. The second quarter grew 3%, but he said that was distorted by trade swings.
Labor market – Payrolls rose by about 150,000 per month over the past three months and the unemployment rate remained near 4.1%. Wage growth is moderating.
Inflation – PCE inflation increased 2.5% year‑over‑year, with core PCE up 2.7%. Services inflation is easing but tariffs are lifting some goods prices.
Market pricing – Investors initially expected a September cut, but Powell’s comments knocked that probability below 50%. The S&P 500 slipped 0.34%, the 10‑year yield climbed to 4.376%, and the dollar index jumped 0.98%.
What Experts Are Saying About the Fed’s Decision
Uto Shinohara (Mesirow) – “The decision was no surprise, though markets noticed the two dissenters. The Fed’s messaging still calls the labor market ‘solid’ and inflation ‘somewhat elevated,’ and September is a coin flip”.
Tom Porcelli (PGIM) – He expects two cuts later this year, saying, “There’s enough evidence that consumption and labor are slowing. Whether Bowman and Waller dissent for political or fundamental reasons, some elements of truth remain”.
Drew Matus (MetLife Investment Management) – “There’s a wide range of opinions because there’s so much uncertainty. Tariffs and AI make models behave oddly, so investors are a bit risk‑off”.
Tony Welch (SignatureFD) – “Nothing here was surprising. The Fed acknowledged some moderation in growth, which is a slight change, but that explains why markets didn’t move much”.
Tom Graff (Facet) – “This sets up the Fed to cut at the September meeting or later. Even if tariffs temporarily raise inflation, weakness in the labor market would force cuts”.
Christopher Hodge (Natixis) – “The dissents don’t signal a broader split. Waller assumes trade policy will be clarified soon while the majority fears tariffs could last longer, so the disagreement is more political than economic”.
These views suggest that while dissent underscores debate, most investors still trust Powell’s data‑dependent approach.
Market and Policy Implications of the Decision and Dissent
Bonds and stocks – A delayed rate cut pushed Treasury yields higher and stocks slightly lower. AI optimism kept equities from falling sharply.
Currencies and capital flows – A stronger dollar weighs on emerging‑market currencies and commodity prices. That could pressure the Korean won and raise import costs.
Tariffs and supply chains – Trump’s tariff overhaul could raise prices. Powell said the effects might be one‑off but warned they could become persistent.
Political risk – Trump has floated replacing Powell and has named potential successors. Firing a Fed chair mid‑term would be legally murky, so Powell is likely to serve through May 2026.
Data Watch, Political Risks and Succession
September FOMC – Inflation and jobs data over the next two months will shape the decision. CME’s FedWatch puts the odds of a September cut below 50%.
Tariff dynamics – If tariffs keep pushing prices higher, cuts may be delayed. If the labor market weakens, cuts could come sooner.
Fed independence – Political pressure may intensify, but dissent also shows the Fed is not captive to groupthink.
Succession – Waller is viewed as a contender for chair. Powell’s steady hand may still be favored for stability.
Despite two dissenting votes, the Fed kept rates unchanged and reaffirmed its focus on taming inflation. Powell emphasized the need to balance solid but slowing growth with still‑elevated inflation. Markets continue to follow his lead, viewing the double dissent as evidence of healthy debate rather than a fractured committee. Watch the upcoming inflation and jobs reports and the September meeting for further clues.
