Tariff-fueled inflation, DOGE federal job cuts, and immigration policy are top of mind at the Federal Reserve.
So are your family’s wallet, budget, and household debt.
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All of these contribute to the cost of borrowing money and how the Fed’s latest decision on monetary policy impacts the U.S. economy.
Lower borrowing costs encourage businesses to invest and expand, potentially leading to job creation and wage growth.
For consumers, increased disposable income from lower debt payments can result in higher spending on goods and services, a key driver of economic growth.
Federal Reserve Chair Jerome Powell has said the Federal Open Market Committee will act on interest rates in a “meeting by meeting” manner.
Image source: Kevin Dietsch/Getty Images
Federal Open Market Committee votes on interest rate cut
The Federal Open Market Committee (FOMC), the Fed’s 12-member policymaking panel, voted today to hold the Federal Funds Rate steady at 4.25% to 4.50%.
This “wait-and-see” approach reflects a cautious stance in a post-pandemic economy marked by persistent inflation and ongoing geopolitical uncertainties, including trade wars.
Maximum employment and price stability are the twin priorities — officially called the dual mandate — of the Federal Reserve.
These goals require a strategic balance of macroeconomics because higher interest rates lower inflation but increase job losses, and lower interest rates decrease unemployment but increase inflation.
The independent central bank uses interest rates as a tool to manage its dual mandate.
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The Federal Funds Rate is the price the Fed charges U.S. banks to borrow money overnight.
This sets short-term benchmark interest rates for borrowing money via credit cards and home equity, auto, and student loans.
The 10-year Treasury Bond yield is the benchmark for longer-term interest rates like the 30-year fixed mortgage, currently hovering around 6.8%.
The Fed has set an inflation target of 2% before it would consider cutting rates.
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The next FOMC meeting is Sept. 16-17.
The July meeting didn’t include updated Summary of Economic Projections (SEP) and the “dot plot,” but the September meeting will have these revised forecasts on inflation, unemployment, and interest rates.
What the latest GDP numbers show
The new GDP estimates released today are an example of the fluctuating data adding to economic uncertainty.
Second-quarter GDP rose 3.0%, up from a decrease of .5% during the first quarter of 2025.
Related: Why the Federal Reserve matters so much
Economists say the more accurate measure of the economy’s performance this year is the gross domestic product for the entire first half of the year.
Under that formula, GDP increased only an adjusted 1.25% for the first six months of the year compared to the same period last year.
The personal consumption expenditures price index (CPE) increased 2.1%, compared to 3.7% in the first quarter. Core CPE increased 2.5% compared to 3.5% in 2024. The CPE is the Fed’s key inflation metric.
The Consumer Price Index (CPI) for June 2025 rose 2.7% year over year. It was the highest increase since February.
The June 2025 “dot plot” showed inflation rising to top 3% this year.
This is a developing story. Stay tuned for updates.
Related: ECB holds interest rates steady amid tariff uncertainty, Fed eyes similar path
