The Line: The Fed Leaves Rates Alone

This week, we have two big stories to discuss, so let’s get right to it.

The Fed Leaves Rates Alone

In a 9-3 vote, the Federal Reserve’s Open Market Committee decided to hold rates steady. That wasn’t a huge surprise, but that didn’t stop financial markets from throwing a fit. As promised, Kevin Warsh has the Fed saying less, especially about its economic forecasts. This upsets these markets because they want to know every move the Fed plans to make in the future, and now they will just have to guess.

The Fed has a dual mandate of price stability and maximizing employment. Right now, the economy, and more specifically the labor market, are OK but not great. That’s why markets are looking for a rate hike in the next few months, because inflation is still running well above the Fed’s 2% target. When they get that hike it is anyone’s guess at this point.

Economic Growth Just 1.5% in the Second Quarter

Gross domestic product—the value of all the goods and services produced in the U.S.—rose at a 1.5% annual rate in the second quarter. Economists surveyed by Dow Jones were looking for a growth rate of 1.8%, so this data is a bit disappointing.

Consumer spending, which is about 70% of GDP, rose 3.2%, which is a pretty good number considering the recent spike in inflation. Investment was up 3.0%, down from 7.9% in the first quarter of 2026. The worst performer in the second quarter was net exports, which subtracted 1% from second-quarter GDP growth. Government spending was down 0.8% but had no significant impact on the GDP number.

To sum up, consumers are still buying stuff at a pretty good, but not great pace. Now that prices are back on the rise after a June decline, it will become harder for them to keep that up.

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