Fed Leaves Interest Rate Unchanged     07/30 06:03

   The Federal Reserve left its key interest rate unchanged Wednesday, although 
three officials dissented in favor of higher rates as the central bank wrestles 
with how to deal with persistently high inflation.

   WASHINGTON (AP) -- The Federal Reserve left its key interest rate unchanged 
Wednesday, although three officials dissented in favor of higher rates as the 
central bank wrestles with how to deal with persistently high inflation.

   The Fed's rate-setting committee reached its decision after two days of 
deliberations, marking the fifth straight meeting at which the benchmark rate 
was kept at around 3.6%.

   Some economists and Wall Street analysts had predicted the Fed would hike 
its rate by a quarter point. But while the decision to stand pat could be seen 
as good news for consumers, they might not feel much relief with the average 
credit card rate still near 20% and mortgage rates the highest since last 
August.

   Inflation has been stuck above the central bank's 2% target for more than 
five years. The Iran war has generated uncertainty over the economic outlook 
and has driven energy prices higher, intensifying inflationary pressure and 
creating a quandary for Fed policymakers. In addition, the vast amounts of 
money being spent by technology companies on artificial intelligence are both 
driving manufacturing and have resulted in increased prices for items such as 
computer chips and electricity. President Donald Trump's tariffs on foreign 
goods are also adding to inflation pressures.

   The three regional Fed bank presidents who dissented -- Beth Hammack of the 
Cleveland Fed; Neel Kashkari from Minneapolis; and Lorie Logan from Dallas -- 
had previously called for or signaled that they would be open to raising rates 
to combat high prices.

   "The dissents send a clear message: The Fed is not yet convinced the 
inflation battle has been won,'' said Seema Shah, chief global strategist at 
Principal Asset Management.

   At a press conference following the rate decision, Fed Chair Kevin Warsh 
reiterated the Fed's commitment to combating inflation. At the same time, Warsh 
said, "We have no magic wand. This isn't something we're going to be able to 
carry out in days or weeks."

   Warsh said he welcomed vigorous debate at the committee meeting. "I asked 
for a good family fight and I got one,'' he told reporters at a press 
conference.

   Warsh has sought to make the central bank more tight-lipped about what it's 
doing. When Fed officials make their views public, he reasons, they are less 
likely to adjust to new information. Even without much guidance from the Fed, 
he said approvingly that financial markets had made their own judgments about 
interest rates, pushing up yields in the past few weeks. The yield on the 
10-year Treasury, for instance, has risen from around 4.50% in mid-June to 
4.64% just ahead of the Fed's rate decision.

   The market is "learning to play the ball and not the referee," Warsh said.

   But some economists were frustrated by the Fed chair's ambiguous answers to 
questions. Thomas Ryan and Stephen Brown of Capital Economics, for instance, 
complained in a commentary that Warsh's "vague'' responses "make forecasting 
the Fed's next move even trickier than it already was.''

   Coming into Wednesday, traders on Wall Street saw a 33% chance the Fed would 
issue a rate hike, although most expected policymakers to hold off, reluctant 
to risk disrupting financial markets. But most expect a rate hike in September, 
according to data from CME Group.

   Trump, who had persistently pressured the Fed to cut rates, voiced support 
for Warsh. "He's fantastic. He's a brilliant guy. Smart. I know he'd love to 
see lower interest rates, but he's got a board and it's a political board and 
they want to keep rates up," Trump told reporters.

   Fed officials likely want to see more economic data before changing the 
benchmark rate. On Thursday, the Commerce Department delivers the first look at 
April-June economic growth and it will also publish the Fed's preferred 
inflation measure -- the personal consumption expenditures (PCE) price index -- 
for June.

   Adding uncertainty to the Fed's decision-making process is the rising 
violence in Iran. The price of oil briefly blasted past $100 a barrel last week 
on intensifying fighting.

   After the U.S. and Israel attacks on Feb. 28, Iran shut down the Strait of 
Hormuz -- through which a fifth of the world's oil and natural gas pass. That 
caused the greatest disruption in oil supplies in history and sent energy 
prices surging. They've since bobbed up and down depending on the ever-changing 
state of the conflict and negotiations to de-escalate it, but the average cost 
for a barrel is $10 to $15 more today than it was at this point last year.

   Inflation has exceeded the Fed's 2% target since early 2021 when the U.S. 
economy overheated as it roared back from COVID-19 lockdowns. Inflation peaked 
at just over 9% in mid-2022 and began to drop in the face of 11 rate hikes by 
the Fed in 2022 and 2023. But progress has more or less stalled.

   So-called core inflation -- which excludes volatile food and energy prices 
-- cooled in June, partly because apartment rents aren't rising as fast as they 
had been. And a temporary drop in gasoline prices last month also helped 
contain overall inflation.

   But several Fed policymakers have been arguing that the Fed will have to 
raise rates to return inflation to the 2% target.

   "Sternly staring at inflation until it melts before our withering gaze is 
not an option,'' Christopher Waller, an influential member of the Fed's 
governing board, said in a speech this month. Still, Waller voted to leave 
rates alone this week.