After the US Federal Reserve kept interest rates on hold at 4.25 to 4.50 per cent on Wednesday, its fifth consecutive meeting without a move, wealth managers discuss the impact on asset allocation and potential timings of a future cut.

The majority of the 12 voting members of the policy committee felt that with US inflation a bit above target and the economy running at maximum employment, there was no need to cut interest rates yet, according to Jerome Powell, chair of the US Federal Reserve.

He also stressed that despite recent trade deals, it remains to be seen whether higher tariffs would lead to a one-off rise in prices or more persistent inflation.

Notwithstanding this cautious stance, there were signs both from the Fed meeting and the latest economic data that rate cuts are likely on the way. Two members of the board of governors voted in favor of a July cut yesterday, the first time in which governors have dissented from the majority since 1993.

The US economy also cooled in the first half of 2025, according to data released ahead of the Fed decision. While the annualized GDP growth of 3 per cent in the second quarter was above expectations, and a rebound after a 0.5 per cent contraction in the first quarter, Powell observed that this volatility largely reflected swings in imports relating to the increase in US tariffs. For the first half overall, GDP grew slightly over 1 per cent, a percentage point lower than the pace of 2024. There were also indications of moderating activity in the details of the data. Business investment slowed sharply and residential investment, which is highly rate-sensitive, continued to decline.

Consumer spending – although growing – also registered its weakest consecutive quarters since the pandemic. This is in line with UBS Global Wealth Management base case for US GDP growth to slow to around 1.5 per cent this year as the direct and indirect effects of trade tariffs feed through the economy. “We continue to expect the Fed to resume policy easing in September, cutting rates by 100 basis points over the next 12 months. Investors should consider medium-duration high grade and investment grade bonds for more durable portfolio income,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note.

Other reactions

Joaquin Thul, economist at EFG Asset Management
“We continue to expect two rate cuts before the end of 2025, with the next move probably priced in for the next meeting in September, when more data on the impact of tariffs on prices and activity could swing the Federal Open Market Committee’s (FOMC) decision.”

Richard Clarida, PIMCO global economic advisor
"The Fed remains data dependent and will have two months’ of inflation and employment data before policymakers meet again in September. Our base case remains that the Fed will begin cutting rates in the second half of this year as we expect the economy to continue to slow; however, uncertainty remains high and data will continue to drive the Fed, and subsequently, the market’s view on where to take interest rates next." 

Garry White, chief investment commentator at Charles Stanley 
"The Federal Reserve remains cautious about declaring victory over the recent prolonged surge in inflation, as the American economy continues to show significant resilience. The US economy grew at an above-consensus annualized rate of 3 per cent in the second quarter, rebounding from a contraction in the first three months of 2025, during which US President Donald Trump’s tariffs triggered a huge swing in imports, which are a detractor from gross domestic product (GDP). The Trump tariffs do not appear to have resulted in a significant impact, but they may reignite price pressures later this year. A cut in interest rates at this stage would have been unwise, given the persistent nature of inflation following the post-Covid spike. The Fed’s wait-and-see policy looks correct."

Dan Siluk, head of global short duration and liquidity and portfolio manager at Janus Henderson Investors
“As expected, the Federal Reserve held the federal funds rate steady at 4.25 to 4.50 per cent for a fifth consecutive meeting. The decision was not unanimous, with Governors Bowman and Waller dissenting in favor of a 25 basis points cut, a development well telegraphed ahead of the meeting and now confirmed.

“The statement featured a modest downgrade in the Fed’s economic assessment. In June, they wrote that economic activity had “continued to expand at a solid pace” while today the tone was more cautious, stating that “economic activity moderated in the first half of the year.” The committee continues to characterize inflation as “somewhat elevated,” but acknowledged persistent upside risks, particularly from tariffs and fiscal dynamics.

“Chair Powell is expected to maintain a data-dependent posture in the press conference, keeping September in play without committing to a cut. Markets are likely to interpret today’s outcome as a continuation of the Fed’s “wait-and-see” strategy, with a dovish lean emerging through the dissents and softer language. The September meeting will be a live one.”

Isaac Stell, investment manager at Wealth Club
“Hot on the heels of stronger-than-expected GDP growth figures for Q2, the Federal Reserve has held interest rates steady for a fifth consecutive meeting. With robust GDP figures, a jobs market that remains robust, and inflation rising for the second straight month in June the chances of a rate cut today was always a distant possibility. However, for the first time since 1993, two governors dissented in favor of a 0.25 per cent rate cut with the Fed’s accompanying statement noting that growth had moderated in the first half of the year.

“US President Trump will, once again, take umbrage at this latest decision. He had already demanded that the Fed ‘MUST NOW LOWER THE RATE’ ahead of the decision. Despite the sustained pressure, Jerome Powell and his deputies have once again defied the President’s wishes and chosen independence over political capitulation.”

Ashish Shah, CIO of public investing at Goldman Sachs Asset Management
“As expected Governors Bowman and Waller were dovish outliers, with the majority of the FOMC instead preferring to wait to learn more about the inflation process over the summer. The next two months data will be pivotal and we see a path to a resumption of the Fed’s easing cycle in the autumn should tariff inflation prove more modest than expected or the labor market show signs of weakness.”

Jack McIntyre, portfolio manager, Brandywine Global
“It is an exceedingly rare occurrence when two Fed governors dissent at an FOMC meeting, but it was the most well telegraphed dissention ever at the FOMC meeting. The driver of the dissension was about the timing of rate cuts, not the direction of policy adjustments. Not a big deal. The real impact of the dissenters was to pull Powell toward the dovish camp for September. That was evident in his press conference and FOMC statement, where the Fed pointed out that the economy is slowing, and uncertainty remains elevated. In the monetary policy vs fiscal policy (tariffs, taxes, and spending) dynamic, the markets think the latter is more important – I agree. Barring any major surprises with the July or August employment reports, the Fed will cut policy rates in September. That meeting will have fireworks; today was just sparklers. As expected, there will be a minimal market reaction.”

Max Stainton, senior global macro strategist at Fidelity International
“Looking ahead, we continue to expect the US economy to pass through a stagflationary phase through the rest of the year, as a result of effective tariff rates moving up to the 18 to 20 per cent range, with inflation likely to reach 3.5 per cent by Q4, and underlying growth remaining subdued at below 1 per cent. However, risks are also building that the growth shock from tariffs will be larger than expected with a resultant larger negative shock to the US labor market. Given this outlook, we expect the Fed to break into three distinct camps as the year progresses.

"The first camp will consist of political cutters, who are advocating for cuts as much to get the attention from the President as anything else. The second, a classically dovish camp that puts more weight on the weakening labor market fundamentals. Finally, a third hawkish camp that stick rigidly to the Fed’s mandate in weighting inflation and unemployment equally, cautious of stagflationary pressures persisting for the rest of the year and into next, that have a preference for keeping the Fed funds rate high for longer. In this press conference it was clear that Powell firmly sits in this latter camp, and as a result we continue to expect cuts to only start in December this year, a view we’ve held since November 2024.”