ONE CYR'S VIEW: The steady course of the Federal Reserve

The Federal Reserve Open Market Committee (FOMC) met on July 28 and 29 and decided to maintain a steady course, neither raising nor lowering rates. The target range will remain within 3.5 percent and 3.75 percent.

This meeting was the fifth consecutive one in which the FOMC has decided to maintain a steady state, with no shift in the target range. The last change in the interest rate was in December 2025.

The continuing consistency reflects in broad terms the strategic commitment of new Fed Chairman Kevin Warsh to focus on data, not drama or political pressures. This laudable high-minded commitment is more easily declared than achieved in Washington at any time, but especially in the current intensely charged environment.

Three of the twelve members of the FOMC voted to raise interest rates. Chairman Warsh referred to this by saying, "I asked for a good family fight, and I got one." Not a bad analogy, given the powerful imagery and implication that the group enjoys overall unity in the commitment to bringing down inflation while managing prudently.

The three dissenters were Beth Hammack, President of the Federal Reserve Bank of Cleveland; Neel Kashkari, President of the Federal Reserve Bank of Minneapolis; and Lorie K. Logan, President of the Federal Reserve Bank of Dallas.

Overall, this anti-inflation commitment is particularly reassuring given President Trump's continuous, often strident, calls to cut interest rates. The recent Supreme Court decision making explicit the tradition that Fed members are protected from arbitrary removal by the chief executive provides further reassurance.

In the background, important if rarely discussed, is the very large Fed balance sheet. This is the legacy of bond purchases to maintain liquidity in the 2007-8 financial crisis, plus responses to COVID-19 and bank regulatory changes.

Chairman Warsh is committed to reducing that balance sheet and has already begun.

The economy is growing and consumer spending is strong. Unemployment remains low. So far at least, our economy—and society—have been able to absorb a sizable war with Iran without great disruption.

Above all, the United States has a foundation of enormous economic strength. In 2025, U.S. Gross Domestic Product (GDP) reached $30.77 trillion, and the Dow Jones Industrial Average (DJIA) peaked at 48,704. By contrast, in 2000, GDP was $10.25 trillion and the DJIA peaked at 11,723.

History provides essential context.

The 1929 stock market collapse, ushering in the Great Depression, was steep. From a peak of 381.17 on September 3, the DJIA lost 25 percent over two days and then drifted down to the historic low of 41.22 in July 1932. During the height of the selling frenzy, stocks were traded in volumes not reached again until the late 1960s.

Stocks did not return to the 1929 peak until 1954, in great contrast to the 2007-8 financial crisis. Great public suspicion as well as hostility toward bankers defined American political life for years.

The global financial crisis that began in 2007 was the most recent since the Great Depression. Many banks failed while others were saved by enormous emergency federal funds. The Federal Deposit Insurance Corporation, established during the New Deal, protected bank depositors. The Fed maintained liquidity.

The principal catalyst of that crash was the enormous volume of high-risk debt centered on real estate. In the future, unpredictable cryptocurrencies could prove the catalyst for a major financial crisis.

Collective wealth provides a reassuring foundation, but effective, responsible leadership remains crucial.

Arthur I. Cyr is the author of "After the Cold War—American Foreign Policy, Europe, and Asia" (NYU Press and Palgrave/Macmillan). Contact him at [email protected]