US Federal Reserve Maintains Benchmark Interest Rate at 3.5-3.75%

Markets reacted with relief to the decision, with the S&P 500 and Nasdaq recovering early losses during the regulator’s press conference. However, the vote revealed a lack of total consensus. While the final decision to keep the rate in the 3.5-3.75% range was supported by the committee, one source reports that three of the 12 members actually voted to increase the rate by 25 basis points. This occurred despite reports that the decision to preserve the rate was supported by all 12 members of the Federal Open Market Committee, with no one voting against it.

According to CNBC, the decision was made under conditions of uncertainty, as the probability of a rate increase was estimated at 29% shortly before the announcement.

Inflation Targets and the Stance of Kevin Warsh

The Federal Reserve’s hesitation to cut rates stems from a persistent gap between current pricing and official goals. According to a press release, inflation remains elevated compared to the committee’s 2% target, a situation driven partly by supply shocks in specific sectors, including energy.

Kevin Warsh, the head of the regulator, told reporters that the agency will act without hesitation to ensure price stability. He explicitly stated, We will ensure price stability, and added that he would not tolerate target overruns, emphasizing that there is no soft target for inflation.

Economic Activity and Global Uncertainty

Despite the inflation battle, the Fed noted that economic activity is growing at a steady pace. This growth is occurring against a backdrop of high uncertainty, which the regulator attributed in part to the ongoing conflict in the Middle East. To manage this, the agency is maintaining a policy of keeping sufficient reserves within the banking system. The regulator stated that this step is intended to support the fulfillment of the regulator’s “dual mandate,” which refers to the control of inflation and the situation in the labor market.

The current rate of 3.5-3.75% is the result of a multi-year trajectory of adjustments. The decision coincided with forecasts from analysts surveyed by the Trading Economics portal. On the previous four meetings, the regulator also kept the rate unchanged.

Looking back at previous cycles, the Federal Reserve raised the base rate to 5.25-5.5% in July 2023 and maintained it at that level for the following eight meetings. In November and December 2024, the regulator lowered the rate by 25 basis points, after which it was held at 4.25-4.5%. From September to December of last year, the American central bank lowered the rate three times, reaching the current level of 4-4.25%.

AI Infrastructure and Tech Sector Capital Expenditures

As the central bank holds steady, investor focus has shifted toward the massive spending plans of technology giants, specifically Microsoft and Meta Platforms. The primary concern for the market is the scale of capital expenditures on artificial intelligence infrastructure in the current year and up through 2027.

Alphabet increased its 2026 capital expenditure forecast by $15 billion, bringing it to a range of $195 billion to $205 billion. Similar moves are expected from Meta Platforms as it expands its cloud business.

U.S. National Debt and GDP Thresholds

The Fed’s balancing act comes as the U.S. faces a significant debt milestone. For the first time in 79 years, the national debt has exceeded 100% of the country’s GDP.

The last time U.S. debt exceeded GDP was after World War II in 1946, when the indicator reached 106% of the economy. This fiscal pressure is expected to intensify; projections from Fitch Ratings suggest that the debt load could continue to climb, potentially reaching 120% of GDP by 2027.

Market participants are now awaiting the publication of June PCE (Personal Consumption Expenditures) price index data—a key inflation indicator used by the Fed—and the first estimate of second-quarter GDP. They are also awaiting financial results from corporations including Amazon, Starbucks, Arm Holdings, and Qualcomm.