On July 29, the U.S. Federal Reserve (Fed) decided to maintain its key interest rate within the range of 3.5% to 3.75%. Bitcoin's price remained stable, trading around $64,000.

Significant Division Among Committee Members

The decision was made with a vote of nine to three, where Bet Hemmick, Neel Kashkari, and Lori Logan advocated for a 0.25 percentage point increase. All three lead regional Fed banks in Cleveland, Minneapolis, and Dallas. This level of dissent in favor of tightening has not been seen since September 2016, as reported by CNBC.

The interest rate has remained unchanged for five consecutive meetings since a 25 basis point cut in December.

Source: Board of Governors of the Federal Reserve System.

Inflation in the U.S. has exceeded the targeted 2% for over five years. In their statement, committee members attributed rising prices to supply shocks, particularly in energy. Economic activity was characterized as "growing at a steady pace," despite increased uncertainties due to the conflict in the Middle East.

During a press conference, Fed Chair Kevin Warsh refrained from labeling the decision as a pause. He stated that the agency conducted a "rigorous review of the economic situation."

Warsh dismissed the notion that the Fed's actual target is above the stated goal, emphasizing that there is no soft inflation target, only the 2% benchmark. He added that five years of high prices "cannot be cured in nine weeks or with one month of moderate slowing."

Additionally, the Fed Chair noted that U.S. Treasury yields have significantly increased over the past 42 days since the last meeting, with part of this movement ranking among the strongest in the last two decades.

Crypto Market Remains Unmoved, Stock Prices Decline

The cryptocurrency market showed no reaction to the announcement. Over the past 24 hours, the market capitalization rose by 0.2% to $2.2 trillion, with Bitcoin increasing by 0.5%. At the time of writing, its price is $63,900.

Hourly chart of BTC/USDT on Binance. Source: TradingView.

According to CoinGecko, Ethereum's price rose by 0.6%, reaching $1,899, while BNB, XRP, and Solana gained between 0.3% and 0.8%.

The stock market's response was contrary to expectations. Although indices managed to recover some losses post-announcement, sentiments shifted negatively during Warsh's speech.

By the end of the day, the S&P 500 dropped by approximately 1.5%, the Nasdaq Composite fell by 1.7%, and the Dow Jones Industrial Average declined by 2.19%. Bespoke Investment Group noted that this marks the worst performance for the S&P 500 on the second "Fed day" under the new chair in modern history.

Analysts at Bespoke Investment Group pointed out that this was the worst reaction for the S&P 500 following the second meeting of the new Fed chair since they began tracking data in 1994.

Economists Split on Future Rate Predictions

Expert discussions have shifted from rate forecasts to assessing the implications of a potential increase.

Kathy Bostjancic, chief economist at Nationwide, argued that keeping rates steady for the year is justified as inflation is driven by supply-side factors; thus, raising rates would not alleviate the energy shock from the Middle East or slow investments in AI infrastructure, which are contributing to rising prices for equipment and electricity.

In contrast, Jeffrey Gundlach of DoubleLine Capital expressed a different view during an appearance on CNBC, stating that the origin of inflation does not absolve the Fed of its responsibility to achieve the 2% target, which he believes necessitates a rate increase. The market appears to be aligning with this logic.

Investors are currently estimating a 65% probability of a 25 basis point hike. On Polymarket, this figure stands at 54%, while Kalshi records 53%.

Source: CME FedWatch.

Stephen Douglas, chief economist at NISA Investment Advisors, remains one of the few who predicts the opposite outcome. He described July's decision as a "hawkish hold" and anticipates the Fed will lower rates in March 2027.

Jim Caron, Chief Investment Officer at Morgan Stanley Investment Management, offered an alternative perspective, suggesting that the debate over rates is losing intensity as tightening is already occurring through rising Treasury yields, which the Fed is not intervening to stop. He believes the long-term trend for stocks remains upward, and the dips following the meeting could present entry opportunities for investors.

It should be noted that the day before the meeting, traders had increased the odds of a Fed rate hike. Previously, Bitcoin had remained above $65,000 following a slowdown in U.S. inflation, while after the June meeting — the first under Warsh's leadership — it fell below $64,000.