U.S. Federal Reserve Chair Kevin Warsh during a press conference [AFP=Yonhap News]

The U.S. Federal Reserve (Fed) maintained its benchmark interest rate at 3.50–3.75% on the 29th (local time). However, with the number of committee members dissenting against the freeze and calling for a rate hike rising to three, the decision is being interpreted as a "hawkish hold."

Wall Street experts had largely anticipated that the Fed would keep interest rates unchanged ahead of this decision.

Wall Street’s consensus is that the 0.4% month-on-month decline in the U.S. Consumer Price Index (CPI) for June, driven by falling oil prices, gave the Fed the breathing room to wait and observe how the situation develops.

Of course, inflation risks remain as geopolitical tensions between the U.S. and Iran have resumed this month, threatening major international energy shipping routes, including the Strait of Hormuz and Red Sea lanes, leading to a sharp rebound in global oil prices.

Because of this, traders betting on interest rate trajectories saw a non-negligible possibility of a "surprise hike" ahead of the announcement.

In fact, according to the CME FedWatch Tool, the interest rate futures market had priced in a roughly one-in-three probability of a rate hike at this meeting until just before the decision was announced.

U.S. Federal Reserve building [Reuters=Yonhap News file photo]

While the "surprise hike" scenario anticipated by some on Wall Street did not materialize, the fact that three Fed members dissented suggests there is significant pressure within the Federal Open Market Committee (FOMC) to raise rates.

At this meeting, three members—Beth Hammack (Cleveland), Neel Kashkari (Minneapolis), and Lorie Logan (Dallas)—voted against the freeze, advocating for a 0.25 percentage point rate increase.

These three members had previously expressed dissent at the April FOMC meeting, arguing that it was inappropriate to maintain dovish language such as "additional adjustment" in the policy statement.

However, it is worth noting that these three members did not dissent during the June FOMC meeting, which resulted in a unanimous decision to hold rates steady.

A trader at the New York Stock Exchange [Reuters=Yonhap News file photo]

The Fed maintained its existing stance regarding the U.S. economic situation.

Except for the mention of the three members advocating for a rate hike, the language regarding the economic outlook in the policy statement remained largely unchanged compared to June.

Prior to the meeting, some on Wall Street speculated that the Fed might provide a hint regarding the possibility of future rate hikes in this statement.

However, like the June statement, the July document omitted any clear policy signaling regarding future direction.

In this statement, the FOMC reiterated the June language: "Inflation remains above our 2 percent objective, reflecting in part supply shocks that have caused price increases in some sectors, including energy," adding that "the Committee will achieve price stability."

This is interpreted as a reflection of new Fed Chair Kevin Warsh's stated intention to minimize forward guidance on policy direction.

Nonetheless, Fed members have signaled that they expect one rate hike within this year. In the "dot plot" of economic projections released in June, members indicated a median expectation of one rate hike before the end of the year.

The market currently expects a high probability of a 0.25 percentage point rate hike in September.

According to the CME FedWatch tool, the interest rate futures market reflected a roughly 72% probability of a rate hike in September immediately following the announcement of the decision.