Hong Kong maintains interest rate at 4.75% despite U.S. Fed resisting Trump's pressure for rate reduction.
In a move that was both expected and unexpected, the Federal Reserve decided to keep interest rates unchanged in its fifth meeting of 2025. The decision was primarily driven by elevated economic uncertainty, moderated economic growth, a low unemployment rate with solid labor market conditions, and somewhat elevated inflation.
Fed Chairman Jerome Powell expressed that it doesn't feel like the end of the process of resolving uncertainties is near, and there are many uncertainties left to resolve. Policymakers are adopting a cautious "wait-and-see" approach as they continue to monitor inflation and labor market data before making further rate adjustments.
The benchmark federal funds rate was held steady at the range of 4.25% to 4.5%, where it has remained through all five policy meetings this year. Recent data shows that the growth of economic activity moderated in the first half of 2025, indicating slower expansion but not contraction. The labor market remains robust, with a low unemployment rate and strong employment conditions. Inflation remains somewhat elevated, posing a risk that requires close monitoring.
The Fed's approach reflects caution due to uncertainty about the nation's economic outlook, including the lingering impact of trade policies and tariffs. There was unusual dissent within the FOMC, with two members voting for a rate cut, highlighting some division over the pace of future monetary easing.
Meanwhile, the Hong Kong Monetary Authority maintained its interest rate at 4.75%, higher than the US Federal Reserve's target range. The FOMC's decision not to cut interest rates led to a rise in Treasury yields and a sell-off of US stock indexes, marking the worst FOMC-day sell-off since December.
The FOMC's decision was expected by rates traders, but the sell-off of US stock indexes occurred after the FOMC decision, indicating that some traders were expecting a rate cut. The FOMC is scheduled to meet next in mid-September, and Powell downplayed the prospects of cutting interest rates in that meeting.
Despite pressure from President Trump to cut the cost of funds, the FOMC's decision not to cut interest rates was made during the fifth FOMC meeting of the year. The decision defied expectations of some traders, and the Treasury yields rose following the FOMC decision. The FOMC voted 9-2 in favor of keeping the US Federal Reserve's target rate unchanged.
In conclusion, the Federal Reserve's decision to hold steady on interest rates is a reflection of the balancing act between supporting growth and containing inflation amid uncertain economic signals. The FOMC will continue to monitor economic data closely and make adjustments as necessary in the coming months.
References:
[1] Federal Reserve Decision: What You Need to Know, CNBC, 2025. [2] Fed Leaves Rates Unchanged, Wall Street Journal, 2025.
- Given the lingering impact of trade policies and tariffs, the Fed's cautious stance toward maintaining interest rates could potentially have implications for global business and trade.
- The Federal Reserve's decision to keep interest rates unchanged in the face of elevated inflation and moderated economic growth is a significant move in the field of finance, indicating a commitment to maintaining economic stability.
