Fed leaves rates steady, with internal dissent

The Federal Reserve left its interest rate target unchanged Wednesday amid significant internal dissent from officials who preferred to raise rates.

The big picture: The central bank elected not to surprise markets with an interest rate hike, contrary to rampant speculation on Wall Street in recent days. But three members of the policy-setting Federal Open Market Committee did favor raising the cost of borrowing.

• Cleveland Fed president Beth Hammack, Minneapolis Fed president Neel Kashkari, and Dallas Fed president Lorie Logan preferred a quarter-point rate hike, with the other nine officials, including chairman Kevin Warsh, voting to stand pat.

Driving the news: The committee left its target range for the federal funds rate between 3.5% and 3.75%, where it has stood since December.

• "Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East," said the post-meeting policy statement, repeating language from the June meeting.
• Indeed, the statement was virtually unchanged from the last meeting, offering no clues as to whether or in what circumstances the committee might raise rates later this year.

State of play: While most Fed watchers anticipated the holding action and financial markets priced it in as the most likely result of the meeting, there were rumblings in the last 10 days that persistently high inflation combined with a resurgence in energy prices might prompt a rate hike.

• Before the meeting, markets put the odds at roughly 1 in 3 on that outcome, the most uncertainty around a Fed rate decision in years.
• Warsh, in his second meeting at the helm, has eschewed the kind of clear guidance about future rate moves that his predecessors tended to use — instead favoring that policy meetings feature a "good family fight," where the outcome isn't pre-ordained.

By the numbers: The Commerce Department releases June income and spending data Thursday. Analysts expect that it will show the Personal Consumption Expenditures Price Index, the Fed's go-to inflation gauge, was up 3.7% over the last 12 months.

• It has been above the Fed's 2% target every month since March 2021.
• Fed officials have chalked up a recent resurgence to one-off events like new tariffs and the Iran war, but several are losing patience and worry that the central bank's credibility as an inflation fighter is undermined by the sustained high inflation.
• "The Committee will deliver price stability," the statement said, repeating June language.

What's next: Warsh will take questions from the news media in a press conference at 2:30pm ET.