Federal Reserve holds rates steady at 3.5%-3.75% as Japan signals more hikes ahead

Two of the world’s most powerful central banks made their latest moves within 48 hours of each other. The Federal Reserve held its benchmark rate at 3.5%-3.75% after its July 29-30 meeting, while the Bank of Japan kept its rate at 1% on July 31 but made clear it’s not done tightening. The Fed’s decision wasn’t exactly unanimous. Three members voted for a 25 basis point hike, creating a 9-3 split. Meanwhile, the BOJ’s hold came with language warning that underlying inflation could exceed its 2% target for the first time in the bank’s modern history. The Fed’s patience is wearing thin, but not thin enough Chair Kevin Warsh emphasized that the Fed “will not hesitate to act” to bring inflation back to its 2% goal, while simultaneously justifying why the committee chose not to act this time around. The reasoning comes down to consumers. Personal consumption expenditures remain firm enough that the Fed sees domestic demand as resilient, not overheating. Energy prices are still pushing costs higher, but the broader consumer picture apparently doesn’t scream emergency to the majority of voting members. A 9-3 vote is notable. The Fed prefers to project consensus, and triple dissents tend to...