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Fed Leaves Interest Rates Unchanged, Despite Three Votes for an Increase

Kevin M. Warsh, the Fed’s new chairman, vowed to fight persistent inflation without offering specifics about whether that would include raising rates.

by Colby Smith, The New York Times, July 29, 2026

The Federal Reserve on Wednesday kept interest rates unchanged despite growing pressure to more directly tackle inflation after five years of overshooting the central bank’s 2 percent target.

The Fed voted 9-3 to maintain rates at 3.5 percent to 3.75 percent, a level that has been in place since January…

The Iran war is not the only supply shock the Fed is having to navigate. President Trump is still actively adding new tariffs, and the labor market is still digesting sweeping immigration restrictions he has put in place. Officials are also dealing with booming demand for products tied to the sharp rise in artificial intelligence investment. Supply has yet to catch up, leading to higher prices on items such as semiconductors, computer chips and servers.

The debate at the Fed centers on how quickly inflation will ease from here as some of these temporary factors fade, and whether rate increases will ultimately be necessary to get back to target…

In a policy statement on Wednesday, the Fed reiterated that it would deliver price stability, describing inflation as “elevated.” It noted that economic activity was “expanding at a solid pace,” and that productivity growth and capital investment were “strong.” It also conveyed that the labor market was stable… [end quote]

Everyone knows that the combination of above target inflation, a strong economy and stable labor market is the recipe for higher fed funds rate. There’s a good reason that 3 FOMC voters wanted to raise the rate.

The FOMC statement didn’t mention the continuous pumping of fiat money into the banks with their “ample reserves” regime. Or the fiscal stimulus from government deficits enacted by Congress.

The bond market responded by steepening the Treasury yield curve. The 30 year Treasury bond jumped to 5.2%. Junk bond spreads jumped. The 10 year TIPS yield rose to 2.4%.

ICE BofA US High Yield Index Option-Adjusted Spread

This is the FOMC’s way of saying, “You have to tighten.” And the bond market’s way of saying, “We don’t trust you to keep long yields stable in the long run.”

Wendy