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Fed: "9 voted for freeze vs 3 for hike...Economic activity expands despite Middle East uncertainty"
"Productivity and investment solid...Inflation higher than target due to energy supply shock"
Trump, who has been pressuring for interest rate cuts, "Wash is fantastic, but there's a political board"
The US central bank, the Federal Reserve (Fed), froze its benchmark interest rate at 3.50-3.75% on the 29th (local time).
The Fed announced that it decided to maintain the benchmark interest rate as such after the regular meeting of the Federal Open Market Committee (FOMC) that concluded on the same day.
This is the fifth consecutive time the benchmark interest rate has been frozen, following January, March, April, and June of this year. It is the second consecutive time the benchmark interest rate has been frozen since Fed Chair Kevin Warsh took office.
The Fed announced that this interest rate freeze was decided by a vote of 9 in favor and 3 against among the 12 FOMC members.
This differs from the unanimous decision to freeze rates at the June FOMC meeting.
The Fed stated that three members, including Beth Hammack, Neel Kashkari, and Lori Logan, cast dissenting votes, arguing for a 0.25 percentage point (P) increase in interest rates.
This appears to reflect the situation where the war between the US and Iran has intensified again, driving up international oil prices and causing domestic prices in the US to surge once more.
The fact that the interest rate futures market reflected a 1 in 3 chance of a 'surprise hike' just before the rate decision today may also have influenced this internal FOMC atmosphere.
The Fed predicted one interest rate hike within the year in its benchmark interest rate forecast announced after last month's FOMC meeting, and the market now expects a high probability of a 0.25 percentage point hike at the September FOMC meeting, given that rates were frozen at this meeting.
The Fed's monetary policy statement today was almost identical to the one released at last month's meeting. The only differences were one phrase, the number of votes for the rate decision, and the identification of the dissenting (hike) members.
The Fed stated, "Despite heightened uncertainty due to conflicts in the Middle East and other factors, economic activity is expanding at a solid pace."
It also added, "Productivity gains and capital investment are strong. Job growth is keeping pace with the labor force, and the unemployment rate has shown little change."
The Fed further stated, "Inflation remains elevated relative to the FOMC's 2 percent objective, partly due to supply shocks that caused price increases in certain sectors, such as energy," and "The Committee will achieve price stability."
Fed Chair Warsh stated at a press conference after the rate announcement, "There is only one objective, and that is 2% (inflation rate)."
The Fed pursues 'maximum employment' and 'price stability' as its 'dual mandate,' and the intention is to focus on curbing inflation in the US caused by global energy supply shocks due to the Iran war.
Chair Warsh emphasized, "The past five years of high inflation have left some households, businesses, and market experts with a persistent and incorrect impression that the Fed's implicit inflation target is higher than 2%," adding, "There is no relaxed inflation target."
US President Donald Trump, who has consistently pushed for interest rate cuts, is unlikely to be satisfied with the Fed's decision to freeze rates this time.
When asked by reporters at the White House today if he was disappointed with Chair Warsh regarding the rate freeze decision, President Trump said, "No. Kevin is fantastic. He's an excellent, smart person."
However, President Trump added, "He (Warsh) has a board," and "I knew he would want to cut rates, but he has a political board, and they want to keep rates high," criticizing the board members who opposed rate cuts.
Meanwhile, with the Fed's latest rate freeze, the interest rate differential between Korea (2.75%) and the US remained at 1.00 percentage point based on the upper bound.
The Bank of Korea's Monetary Policy Board raised its benchmark interest rate by 0.25 percentage points from 2.50% to 2.75% on the 16th.
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