Bankinter | The Fed meets expectations and keeps benchmark interest rates (Fed Funds) at 4.25%/4.50%. The decision was not unanimous, as two governors (Waller and Bowman) voted in favour of cutting rates by 25 basis points. A third governor was absent and did not vote (Kugler). This is the first meeting since 1993 with two dissenting votes.
Bankinter analysis team’s view: The decision to keep rates unchanged makes sense in the current context. Economic activity indicators continue to improve, the labour market is in good shape (unemployment rate of 4.1% in June 2025) and inflationary pressures are above the Fed’s target of 2%. Furthermore, despite progress in tariff negotiations with several important trading partners such as China, Japan and the EU, the final impact on employment and inflation remains to be seen.
The news came at the press conference, where Powell struck a more hawkish tone than the statement seemed to suggest. The Fed prefers not to rush and to continue monitoring macro indicators over the next two months. We believe Powell’s message is appropriate for the current moment, as long as there is no greater visibility on the effect of current trade policy on employment and inflation. The meeting of central bankers in Jackson Hole on 21-23 August could be an opportunity to provide some clarity on the Fed’s next moves.
Following Powell’s conservative tone, the market has reacted clearly by delaying expectations of Fed rate cuts until the October meeting, compared to September previously. In our latest Investment Strategy for Q3 2025, we pointed to a single rate cut this year, of 25bp, at the next meeting in September, to a range of 4.00%/4.25%.
