Fed Holds Rates Steady as Stock Markets Rally on Tech Earnings

TLDR

Table of Contents

Federal Reserve voted 9-2 to keep interest rates steady at 4.25%-4.5% despite pressure from President Trump for cuts
Two Fed governors dissented for the first time since 1993, favoring rate cuts due to controlled inflation and potential labor market weakening
Fed Chair Powell said no decisions made about September rate cut, reducing market expectations from 64% to 46%
US GDP grew 3% in Q2, stronger than expected, while inflation fell to 2.1% using Fed’s preferred measure
Stock futures rose Thursday on strong Meta and Microsoft earnings, with Apple and Amazon reporting later

The Federal Reserve maintained its benchmark interest rate between 4.25% and 4.5% on Wednesday in a divided 9-2 vote. The decision came despite mounting pressure from President Trump for aggressive rate cuts.

Two Fed governors, Michelle Bowman and Christopher Waller, voted against the decision. Both officials wanted the central bank to begin cutting rates due to controlled inflation and concerns about labor market softening.

🚨 UPDATE: THE FEDERAL RESERVE chose not to cut interest rates…
….but Jerome Powell and the board’s decision was DISSENTED by Fed Governors Waller and Bowman in favor of an interest rate cut.
This is a RARE time 2 governors dissent. Not since 1993.
THEY WERE CORRECT. But… pic.twitter.com/O87WmEwONO
— Eric Daugherty (@EricLDaugh) July 30, 2025

This marked the first time since late 1993 that multiple governors dissented on a rate decision. The rare split highlights growing internal debate about monetary policy direction.

Fed Chair Jerome Powell stressed during his news conference that officials had made “no decisions about September.” This statement disappointed markets that expected clearer guidance on future rate cuts.

Market expectations for a September rate cut dropped from 64% to 46% following Powell’s comments. Traders had been pricing in more aggressive easing based on recent economic data.

Economic Data Shows Mixed Signals

The Commerce Department reported second-quarter GDP growth of 3% on an annualized basis. This figure exceeded expectations and suggested the economy remains on solid footing.

Inflation data provided more encouraging news for rate cut advocates. The Fed’s preferred inflation measure fell to 2.1% in the second quarter, down from higher first-quarter levels.

Core inflation, which excludes food and energy prices, registered 2.5% for the period. Both measures moved closer to the Fed’s 2% target, supporting the case for monetary easing.

President Trump has repeatedly called for Powell’s resignation and suggested cutting rates by 3 percentage points. Trump argues lower rates would reduce borrowing costs on national debt and help the struggling housing market.

The Fed’s post-meeting statement noted that “growth of economic activity moderated in the first half of the year.” This represented a less optimistic assessment compared to June’s statement about “solid pace” expansion.

Stock Markets React to Tech Earnings

Stock futures surged Thursday morning following strong quarterly results from Meta and Microsoft. S&P 500 futures rose 1% while Nasdaq 100 contracts climbed 1.3%.

Meta delivered an earnings beat and provided stronger-than-expected guidance despite increased AI spending. Microsoft also impressed investors with solid cloud computing and artificial intelligence results.

Apple and Amazon are scheduled to report earnings Thursday evening. These results could further influence market sentiment heading into the weekend.

The Personal Consumption Expenditures index, the Fed’s preferred inflation gauge, will be released Thursday. This data could provide additional clues about future rate decisions.

Trade tensions eased after the US reached multiple trade agreements ahead of Trump’s Friday tariff deadline. South Korea agreed to a 15% tariff rate on imports while pledging $350 billion in US investments.

The Federal Reserve will gather for its annual Jackson Hole retreat in late August. Powell is expected to deliver a major policy speech at the Wyoming event.

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