Fed Caution Lowers Rate Cut Odds, Markets React

Federal Reserve Chair Jerome Powell signaled caution about a potential September interest rate cut, emphasizing that no decision has been made and that the Fed requires further data, particularly on the impact of tariffs imposed by President Trump. The Fed kept its benchmark interest rate at 4.25%-4.5% for the fifth straight meeting, with two governors dissenting in favor of a cut—the largest internal disagreement in over 30 years. Following Powell's comments, market expectations for a September rate cut dropped from about 63% to below 50%, prompting declines in U.S. stocks and a rise in Treasury yields. The Fed cited persistent, though somewhat elevated, inflation and solid labor conditions but noted growth has moderated. Despite President Trump's ongoing calls for immediate rate cuts to aid homebuyers and reduce government debt costs, the Fed maintained a wait-and-see approach. The U.S. dollar surged to a three-month high against the yen as investors adjusted their outlook for future rate moves.