Following its two-day policy meeting that concluded on July 29, the US Federal Reserve decided to keep the federal funds rate unchanged at 3.5-3.75 per cent. It marked the second consecutive meeting at which the Fed left rates unchanged under Chairman Kevin Warsh, and the fifth straight policy meeting without an adjustment following three rate cuts last year.
However, the market’s attention was drawn to the fact that three of the twelve members of the Federal Open Market Committee (FOMC) dissented, voting in favour of an immediate 25-basis-point rate hike.
At the post-meeting press conference, Warsh said the US economy continued to demonstrate resilience, with stable employment and little change in the unemployment rate, while reaffirming the Fed’s commitment to bringing inflation back to its 2 per cent target.
“We have begun a new chapter, and we recognise that more than five years of inflation running above target cannot be resolved in nine weeks or through a single month of modest price declines,” he said. “We remain firmly committed to restoring price stability. The Fed will continue to base its decisions on incoming economic data rather than providing forward guidance.”
While declining to comment on the next step in monetary policy, Warsh stressed that the Fed would not hesitate to act when necessary and appropriate.
Fed holds rates steady for fifth straight meeting
In an interview with VIR, Pham Luu Hung, chief economist and head of SSI Research, said the Fed’s decision to keep rates unchanged despite three FOMC members voting for an immediate rate hike underscored that inflation concerns remained firmly entrenched within the central bank.
“Chairman Kevin Warsh reiterated the Fed’s commitment to returning inflation to its 2 per cent target but stopped short of providing clear guidance on the conditions or timing for any future rate increase,” Hung said. “This reflects a policy approach that places less emphasis on forward guidance, with decisions increasingly determined by incoming data and economic developments at each meeting.”
“As a result, the market’s ability to predict the policy path has declined significantly, prompting investors to demand a higher risk premium to compensate for policy uncertainty. At the same time, the widening US fiscal deficit and the need for large-scale Treasury issuance are expected to keep upward pressure on long-term bond yields,” he added.
In the near term, Hung said the Personal Consumption Expenditures (PCE) price index, due for release on July 30, would be a key indicator in assessing whether the Fed’s current policy stance was appropriate.
According to SSI Research, a further moderation in PCE inflation would reinforce the Fed’s wait-and-see approach. Conversely, if inflation remains elevated, markets may conclude that the Fed is responding too slowly to inflationary risks, further undermining confidence in its policy direction.
For Vietnam, Hung noted that the possibility of a Fed rate hike between September and December warranted close monitoring.
“Exchange rate pressure remains manageable for now, as the USD is still relatively weak. However, international capital flows could become more sensitive during the period when Vietnam is officially upgraded to emerging market status by FTSE Russell,” Hung said.
“Nevertheless, 2026 is still expected to be a year in which Vietnam’s economic growth and stock market performance are primarily driven by domestic factors, including credit growth, public investment, the property market, and institutional reforms. External developments may trigger short-term volatility, but are unlikely to alter the market’s underlying trajectory.”
Nguyen Thanh Trung, CEO of FinSuccess, said the Fed’s decision to keep rates unchanged, coupled with a 65 per cent probability of a rate hike in September, could create additional pressure for Vietnam.
“Even so, Vietnam still has room to manage monetary conditions through the State Treasury’s operations. Public investment disbursement will remain a key policy tool to support liquidity during the remainder of the year,” he said.
Fed rate cut expands Vietnamese monetary policy flexibility
The decision to cut interest rates by 50 basis-point in last week’s Fed meeting is expected to have several positive impacts on the Vietnamese economy, specifically by alleviating exchange rate pressures and allowing the State Bank of Vietnam to implement a more accommodative monetary policy.
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