In a decision anticipated by market watchers, the U.S. Federal Reserve upheld its benchmark federal funds rate range at 5.25%-5.50%. However, in a twist that caught some by surprise, the Fed refrained from strongly signaling a forthcoming rate reduction in September.

“Inflation has abated over the past year but remains somewhat elevated,” the central bank stated in its policy announcement. “The economic outlook is uncertain, and the [FOMC] is attentive to risks on both sides of its dual mandate,” the statement further elaborated.

In the moments following this unexpectedly hawkish pronouncement, bond yields and the dollar experienced slight upticks, although both remained lower for the day. Bitcoin (BTC) saw a minor decline to $66,550 but retained a modest increase over the past 24 hours. U.S. stocks maintained robust gains for the session, with the Nasdaq advancing 2.4% and the S&P 500 climbing 1.6%.

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Confronted with surging inflation at the time, the Fed’s historic tightening campaign commenced in early 2022, elevating the fed funds rate from 0% to 5.25%-5.50% in less than 18 months. The rate has remained at this plateau for over a year as the central bank exercised caution amidst persistent inflation well above its 2% target.

Leading up to today’s meeting, markets had fully priced in at least a 25 basis point reduction by the mid-September meeting, according to CME FedWatch. Looking further ahead, markets had forecasted nearly a 60% probability of 75 basis points in rate cuts by the Fed’s final 2024 meeting in mid-December.

During his post-meeting press conference, Fed Chair Jerome Powell conveyed that recent data bolstered confidence that inflation is gravitating back towards the 2% target. While no definitive decisions have been made regarding September, he noted that the “general sentiment is that we are moving closer” to lowering rates.