U.S. Fed leaves rates unchanged, three members in favour of hike
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- Federal Reserve held the benchmark rate at 3.50%-3.75% on Wednesday, with Cleveland, Dallas, and Minneapolis Fed bank presidents dissenting in favor of a quarter-point hike — the same trio who dissented at Powell's final April meeting.
- Chair Kevin Warsh, who took over in May, said 'this Fed will not waver' on returning inflation to the 2% target but declined to signal the next policy move, calling it 'comforting' that markets weren't reacting to Fed guidance and adding the central bank 'doesn't endorse any particular market move.'
- The 30-year Treasury yield crossed 5.20% for the first time since 2007 as the yield curve steepened sharply post-announcement — 2-year yields fell while 10- and 30-year yields climbed.
- CME Group's FedWatch tool showed markets priced a 57% chance of a September rate hike after the decision, down sharply from near-100% odds priced before the meeting if the Fed held steady this week.
- Inflation Insights' Omair Sharif expects a 25bp hike at the Sept. 15-16 FOMC meeting unless labor market data collapses or core inflation prints closer to 2% annualized in July/August.
- Nationwide chief economist Kathy Bostjancic argued the Fed 'should remain on hold this year' since higher rates 'will not solve the energy supply shock from the Middle East nor slow AI capex that is driving up prices.'
Why it matters: The three FOMC dissents underscore hawkish pressure under Warsh, yet Nationwide's Bostjancic argues rate hikes can't fix the Middle East energy shock or AI capex inflating prices. With CME FedWatch showing 57% odds for a September hike and the Sept. 15-16 decision turning on July/August inflation prints, the Fed faces a credibility test on its 2% target.
