U.S. — The Federal Open Market Committee kept the benchmark federal funds rate unchanged at its July meeting. The federal funds target rate was set at 3.5%-3.75%.

Nine Federal Open Market Committee members voted in favor of leaving the federal funds target rate unchanged. Three of the 12 voting members of the Federal Open Market Committee dissented from the decision to hold rates unchanged, preferring a quarter-point increase. It is the first time since September 2016 that three Federal Open Market Committee members dissented in the same policy direction.

The Federal Open Market Committee policy statement said economic activity is expanding at a solid pace. The statement also said the unemployment rate is low. These factors justified the hold despite inflation concerns.

The Federal Open Market Committee policy statement said inflation remains elevated relative to the committee’s 2 percent goal. Inflation has been above the Federal Reserve’s 2% target for five years. Trailing 12-month U.S. inflation reached a three-year high in May 2026.

The personal consumption expenditures price index was 3.7% higher than a year earlier. The personal consumption expenditures price index declined 0.1% from the previous month.

Eight of the 19 Federal Open Market Committee members expected a rate increase sometime in 2026 in their June economic projections. This expectation preceded the July decision to maintain the current rate.

Kevin Warsh rejected giving forward guidance about the direction of interest rates. Forward guidance had been a staple of Federal Open Market Committee meeting statements for more than two decades prior to its removal. He said market participants are learning to play the ball, not the referee.

At his Senate confirmation hearing in April 2026, Kevin Warsh said he had made no promises to President Donald Trump regarding interest rates. Warsh serves as Federal Reserve Board Chair.

The Dow Jones Industrial Average lost more than 1,100 points on July 29, 2026. The Dow Jones Industrial Average's loss on July 29, 2026, was its worst single-day performance in over a year. The Dow Jones Industrial Average is a stock market index.

The decision to hold rates steady while removing forward guidance marks a shift in how the Federal Reserve communicates its policy intentions. Market participants are adjusting to a lack of explicit direction from the Fed. The dissent by three members shows internal disagreement on the path forward during persistent inflation.

Inflation remaining above the 2% target for five years presents an ongoing challenge for monetary policy. The recent data showing a three-year high in May 2026 reflects the difficulty in bringing prices down to the committee's goal. The market reaction, including the significant drop in the Dow Jones Industrial Average, reflects the uncertainty created by the new approach.

Why It Matters

The removal of forward guidance ends a communication staple used for more than two decades, requiring market participants to adjust to a lack of explicit direction from the Federal Reserve. This shift coincides with the first time since September 2016 that three committee members dissented in the same policy direction, showing internal disagreement on managing inflation that has remained above the 2% target for five years. The uncertainty surrounding this new approach contributed to the Dow Jones Industrial Average suffering its worst single-day performance in over a year.