On July 29, 2026, the Federal Reserve left the federal funds rate unchanged at 3.50%–3.75%, in line with market expectations. At Warsh’s second FOMC meeting as chair, the decision passed by a 9–3 vote. He did not explain the dissents in detail, and the policy statement was largely unchanged.
We draw three conclusions from the decision and Warsh’s press conference.
First, the case for a rate increase was weaker than in June. The Fed had held rates steady even as inflation was rising and employment remained resilient. Since then, inflation has eased markedly, while the labor market has cooled only modestly.
Second, Warsh’s repeated commitment to the 2% inflation target was not matched by a clear policy threshold or next step. After two consecutive holds, this raised doubts about his inflation-fighting credibility. Yet the three dissents in favor of a rate increase show that the Committee retains a tightening bias. The hold was more likely a response to incomplete data, and the market reaction may have been excessive.
Third, the balance sheet may be the more important policy tool to watch during Warsh’s tenure. Influenced by Friedman and Volcker, he places greater weight on money supply and balance-sheet discipline. As the policy review advances and the scope for further runoff becomes clearer, quantitative tightening may prove more aggressive than markets expect.
On July 29, 2026, the Federal Reserve left the federal funds rate unchanged at 3.50%–3.75%, in line with market expectations.
Since the previous meeting, Warsh had shortened the policy statement and reduced guidance on the future path, making the decision harder to predict. Public remarks by Fed officials also pointed to internal divisions, and markets still priced in roughly a 35% chance of a 25-basis-point increase before the meeting. The hold matched the baseline expectation, but was more dovish than the sizeable hawkish bets implied.
The decision passed by a 9–3 vote. Three regional Fed presidents dissented in favor of a 25-basis-point increase, signaling stronger hawkish pressure within the Committee. The initial market reaction was limited, but the press conference failed to clarify the policy path. Long-term Treasury yields then rose, short-term yields fell, the dollar weakened, gold gained and equities declined, as markets reacted sharply to the gap between the Fed’s anti-inflation stance and its policy actions.
We draw the following conclusions from the decision and Warsh’s press conference.
