The Federal Reserve kept its benchmark policy rate unchanged at 4.25%–4.50% at the July meeting, as widely expected. However, in a notable shift from the unanimous June decision, two Fed Governors — Christopher Waller and Michelle Bowman — dissented in favor of a 25-basis-point rate cut, marking the first double dissent by sitting governors since December 1993, under Fed Chair Alan Greenspan, and signaling emerging divisions within the central bank over the path of monetary policy. 

The rare dual dissent, paired with the Fed’s acknowledgment that economic growth is “moderating,” points to a clear dovish tilt in policy tone. Markets responded accordingly: the CME FedWatch tool now places the probability of a September rate cut at 69%, up from 65% prior to the meeting. The shift reflects growing confidence that easing could begin soon, especially if upcoming data confirm a slowdown in inflation and labor market momentum.   

U.S. Treasury yields initially edged lower following the announcement, with the 10-year yield dipping to around 4.33%, as traders digested both the dovish dissent and the Fed’s still-cautious forward guidance. The U.S. dollar strengthened modestly, reflecting lingering uncertainty around the timing and magnitude of potential cuts.   

“The Fed is responding to an economy that is sending mixed signals on both the growth and inflation fronts,” said Bryan Jordan, chief strategist at Cycle Framework Insights. “The labor market narrative is far from clear-cut, as unemployment claims remain very low even as payroll growth is modest and confidence in job availability continues to fall.”   

In its post-meeting statement, the Federal Open Market Committee (FOMC) acknowledged a moderation in economic activity in the first half of the year but reiterated that labor market conditions remain solid and the unemployment rate low. The Fed also maintained its cautious stance, citing elevated inflation and continued uncertainty around the outlook — particularly as new tariffs set to take effect in August may alter the inflation trajectory. 

“It remains a good bet that the Fed will resume the easing cycle before the end of the year,” Jordan added. “The economic backdrop hasn’t changed much since the FOMC projected 50 basis points of cuts in 2025, and rhetoric from several Fed officials has turned more dovish.” 

With inflation showing signs of stickiness, yet labor indicators softening beneath the surface, the Fed appears to be walking a fine line—balancing the need for policy support against the risk of premature easing in the face of still-elevated price pressures, particularly those driven by trade policies. 

September’s meeting could be pivotal. “On balance, the economy and the underlying inflation trend still look to be slowly cooling. The Fed is tiptoeing back into this easing cycle, but lower rates are likely still on tap in the months ahead,” said Jordan. 

The Fed is holding steady for now, but growing internal dissent suggests that the bar for rate cuts is lowering, particularly if the economy continues to cool or tariff-related inflation proves transitory.