The Federal Reserve made no change to interest rates on Wednesday, as officials debated how the central bank should react to the oil supply shock and corresponding inflation. In the weeks before the meeting, some policymakers had expressed concern about persistent price pressures. Three members of the committee dissented from the decision to hold, favoring a 25 basis-point rate hike instead, in a sign that sticky inflation and low unemployment could steer the Fed toward a more restrictive policy stance in the months ahead. The Fed’s post-meeting statement reiterated that economic growth has been solid, “despite elevated uncertainty” due in part to the conflict in the Middle East. The U.S. economy expanded at an annualized rate of 1.5% in the second quarter, ticking down from 2.1% during the first three months of 2026, according to the Commerce Department’s initial GDP estimate on Thursday. On the inflation front, the core personal consumption expenditures (PCE) price index was up 3.3% year-over-year in June, a notch below the prior month’s reading of 3.4%, the Commerce Department said.

In a televised press conference, Fed Chair Kevin Warsh underscored recent moves in the bond market. He told reporters there had been “material tightening” in financial conditions since the Fed’s previous meeting in June. Markets “appeared more than ever to be reacting to real-time events,” not Fed policy or forecasts, Warsh added. The Fed is scheduled to release updated economic forecasts along with its next rate decision in September. Beforehand, central bankers will gather for an annual summit in Jackson Hole, Wyoming, at the end of August. On Thursday, the Bank of England joined the Fed in leaving its benchmark rate unchanged but said it expects inflation to rise from current levels.

A new post on PGIM’s Long Story Short blog evaluates the benefits of using a probabilistic, scenario-based approach to assessing the economic outlook, particularly as recurring supply and demand shocks form a new structural regime.