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The U.S. Federal Reserve (Fed) decided to maintain its benchmark interest rate unchanged in a range of 3.5% to 3.75%, following the meeting of the Federal Open Market Committee (FOMC) held on July 29, 2016. The decision was approved by a vote of 9 to 3 and reflects the monetary authority’s caution regarding an economy that continues to grow, but where inflation remains above the official target.
During his first press conference as Fed Chairman, Kevin Warsch explained that the U.S. economy has shown greater resilience than expected. He indicated that the labor market remains strong, job creation continues to keep pace with labor force growth, and the unemployment rate has shown little change. However, he warned that inflation remains elevated compared to the 2% target, which is why the Fed decided not to modify its monetary policy.
Warsh emphasized that the Fed’s priority remains fully restoring price stability. In that regard, he rejected the idea that the central bank is willing to tolerate inflation above its official target. “There is only one target, and that is 2%,” he stated, noting that several years of high inflation cannot be corrected in a matter of weeks or with a few months of price moderation.
The decision to keep rates between 3.5% and 3.75% means that the cost of money in the United States remains relatively high. When the Fed maintains or raises interest rates, credit tends to become more expensive for households and businesses, which reduces consumption and investment, helping to contain inflationary pressures. Conversely, a rate cut usually stimulates economic activity by making financing cheaper.
The Fed chairman also highlighted that financial markets have experienced a significant increase in U.S. Treasury yields since the previous FOMC meeting. Although the central bank did not change the benchmark interest rate, investors adjusted their expectations based on recent economic data, reflecting a perception of stronger growth and inflation that still requires monitoring.
Another aspect Warsh highlighted was the strong growth in business investment, particularly in sectors linked to artificial intelligence. According to data cited by the official, investment in equipment and software related to this technology is registering growth rates close to 20% annually. This dynamism is boosting manufacturing activity and strengthening the outlook for economic growth, although it also raises questions about its potential impact on the prices of certain technology goods.
During the meeting, FOMC members analyzed how the economic shocks of recent years—including supply chain disruptions, geopolitical conflicts, energy issues, tariff changes, and the rise of artificial intelligence—continue to influence the U.S. economy. They also discussed the extent to which these factors could affect inflation and labor market performance in the coming years.
The Fed reiterated that it would continue to carefully evaluate the state of the economy before making any further decisions regarding interest rates. For now, maintaining the 3.5% to 3.75% range reflects the intention to consolidate the process of reducing inflation without compromising the strength of economic growth or job stability.
With this decision, the administration of Kevin Warsh marks the beginning of a new phase in U.S. monetary policy, focused on maintaining a firm stance on inflation while observing how economic and financial conditions evolve in the coming months.
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