FOMC Holds Rates at 3.5-3.75% Amid Three Dissents While ECB Signals September Hike

U.S. Q2 GDP expanded at a 1.5% annual rate while nonfarm payrolls declined 23,000 in July. Euro area growth excluding Ireland reached only 0.3% in Q2 with the Eurosystem projecting 0.8% for the full year. Commercial and industrial loan growth fell from 15.8% annualized in April to minus 1.1% in July per Federal Reserve H.8 data, and euro area M3 expanded 3.4% year-on-year against nominal GDP growth near 4%.

Bank lending surveys show tightening standards already underway without further policy action. U.S. M2 at $23.22 trillion reflects Treasury issuance accommodation rather than private credit expansion, with the reverse repo facility near zero and reserves at $2.94 trillion. Euro area bank claims on governments contracted 0.5%. Headline CPI eased to 3.4% in the U.S. and 2.9% in the euro area while energy shocks and fiscal deficits remain the primary drivers.

The policy response targets private sector activity that shows no excess, risking contraction in already decelerating consumer spending and business investment. Both central banks treat imported price pressures as demand-driven despite flat federal spending and unemployment at 6.3% in the euro area.

September decisions will hinge on August CPI and employment prints; persistent weakness in loan demand and money aggregates below trend growth points to unchanged or lower policy rates rather than hikes.