FED Meeting Highlights: Fed holds rates steady at 3.5%-3.75%, Warsh says, ‘goal is to keep inflation manageable’

“I wouldn’t characterise what we did as anything like a pause. I would characterise what we did as a rigorous review of the economic situation,” Warsh said when asked by a reporter about the argument to “pause” interest rates rather than hike or cut them.

“I would characterise what we did as a review of the big hard questions, and I’d characterise it as a view of what our own homework is to try to resolve those questions in the period ahead.”

He added that while the central bank decided not to alter interest rates today, this is merely the beginning of a story, not the end.

Warsh’s “family fight” phrase returns during the press conference as three Fed officials dissent on the rate decision

“I asked for a good family fight, and I got one,” he said. “Most of our discussion was on the big questions that matter to the conduct of monetary policy. We didn’t sort of hide from them. We weren’t scared of them. There was a lot more interaction among my colleagues. It was a real family fight.”

While the majority of the Federal Open Market Committee agreed to hold rates steady in July, three dissented, arguing instead to hike rates to combat above-target inflation.

The S&P 500 moved higher on Wednesday as investors bought megacap stocks, while the Fed kept interest rates unchanged.

The S&P 500 gained 0.2%, while the Nasdaq Composite rose 0.5%. The Dow Jones Industrial Average traded 542 points lower, or 1%.

Big tech stocks rose in afternoon trading, with Apple and Microsoft gaining more than 1%. Alphabet advanced more than 2%.

Warsh welcomed the rise in Treasury yields since the Fed’s last meeting, even as policymakers opted to keep rates unchanged.

“Market attention centred on real data and real economic developments. Prices reacted in real time to incoming information,” he said. “Market participants are learning to play the ball, not the referee, and market prices will continue to respond in the direction and magnitude they see fit.”

Warsh added that the trend is one for the better, saying the Fed doesn’t always need to be the centre of attention.

Although the Fed kept rates unchanged again, Warsh said the central bank is prepared to act if inflation remains stubborn.

He also noted that the Fed under his watch isn’t in the forecasting business and won’t be providing further hints about where rates are heading.

“I understand the desire for rolling forecasts and commentary from this committee, but for our part, we need to observe market reaction to developments direct and unfiltered,” he said.

“I want to stress, of course, that decisions by this committee matter a great deal, and where necessary and appropriate, we will not hesitate to act.”

US economy showing 'impressive resilience', Fed chair Warsh said during press conference after Fed outcome

"The economy is showing impressive resilience, even with recent shocks," Warsh told a news conference. "The trends are positive and reveal solid growth. Job gains have kept pace with the workforce, and the unemployment rate has changed little."

Warsh reiterated that the Fed's key goal is to keep inflation at manageable levels.

“You’ve heard this before, but we will deliver price stability,” Warsh said.

Warsh said the Fed does not have soft targets for inflation. He said the one target they are working towards is the 2% annual rate deemed healthy for the economy.

“We have begun a new chapter, and we understand that the five-plus years of inflation above target cannot be cured in nine weeks, or by a single month of modest price decreases,” Warsh said. “This Fed will not waver. Our credibility rests on performing our duties and delivering on our responsibilities.”

Chris Rupkey, chief economist at FWDBONDS, borrowed a favoured phrase of Warsh’s to criticise what he views as the Fed overlooking inflationary pressures, a CNBC report said.

“If inflation is a choice, the Federal Reserve meeting today shows no sign of taking steps to bring it under control with its primary monetary tool which is interest rates,” Rupkey said, referencing Warsh’s repeated comment that “inflation is a choice.”

"The Committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent, in support of the Federal Reserve's dual mandate. The Committee is continuing its policy of maintaining ample reserves in the banking system."

Job gains have kept pace with the workforce, while the unemployment rate has remained largely unchanged, Fed said

Productivity growth and capital investment remain strong, it adds

“Economic activity is expanding at a solid pace despite high uncertainty, and productivity growth and capital investment remain robust.”

Inflation remains above the 2% target, partly due to supply shocks in sectors such as energy, it notes

The Fed’s rate-setting committee reached the 9-3 decision after two days of deliberations, marking the fifth straight meeting at which the benchmark rate was kept at around 3.6%.

Dissenting in favour of a quarter-point interest rate hike were Beth Hammack, president of the Federal Reserve Bank of Cleveland; Neel Kashkari, president of the Minneapolis Fed; and Lorie Logan, president of the Dallas Fed. Inflation has been stuck above the central bank’s 2% target for more than five years.

"Inflation remains elevated relative to the Committee's 2% goal," the Fed said in a short policy statement after the end of its latest two-day meeting. It replicated word-for-word all of the June 17 statement's assessment of the economy.

The Fed said economic activity is "expanding at a solid pace," noting, as it did in June, that job gains "have kept pace with the workforce, and the unemployment rate has changed little."

The Federal Reserve held interest rates steady on Wednesday.

The widely expected decision to leave the benchmark interest rate in the 3.50%-3.75% range drew dissents from three of the 12 members of the policy-setting Federal Open Market Committee who "preferred" a quarter-percentage-point hike at this meeting.

The yield on 10-year Treasuries advanced four basis points to 4.65%

Germany’s 10-year yield advanced six basis points to 3.16%

Britain’s 10-year yield advanced nine basis points to 5.04%

The US investment-grade corporate bond market showed its most stress in nearly three years this month, according to a New York Fed measure.

While the broader Corporate Bond Market Distress Index was little changed in July, its investment-grade component rose to its highest level since November 2023, suggesting rising strain in high-quality corporate debt.

“Underlying the market-level overall stability, the CMDI for the investment-grade sector deteriorated,” the New York Fed said on Wednesday in commentary accompanying the monthly release, which comprised data through July 24.

Bitcoin attempts to hold $64,000 ahead of Fed as AI favorites fall again, as per CoinDCX

Global markets have been volatile this month as investors question the sustainability of the AI spending boom amid signs that major U.S. companies are deepening a web of AI-linked investments and continuing to funnel billions into the technology at the expense of free cash flow.

"The pressure is shifting from spending plans to returns on investment. Investors want evidence that AI capex is generating revenues now, while also strengthening the future growth outlook," said Gina Martin Adams, chief market strategist at HB Wealth.

The scrutiny comes as competition from China intensifies, both in the race to develop advanced chips and as Chinese firms roll out cheaper AI models.

The Fed is widely expected to leave interest rates unchanged this week, but rising oil prices are reviving inflation fears. Traders now see about a 34% chance of a rate hike this week, while markets are fully pricing in a hike by September.

"The bottom line, from a market point of view, is if oil prices remain elevated in September, the Fed will conclude the oil shock has lasted long enough to demand a rate hike, or hikes," said Chris Low, chief economist at FHN Financial.

The US bond market is pricing in a higher chance of a Fed rate hike than prediction markets, creating a potential profit opportunity that at least one institutional investor appears to be pursuing.

Broker Marex on Tuesday facilitated a $600,000 block trade on the “yes” contract on Kalshi — betting on an interest-rate increase Wednesday — on behalf of an institutional client, according to the firms. They stand to roughly quadruple their investment should Chair Kevin Warsh and his colleagues announce a move to tighten policy at 2 p.m. in Washington.

While US swaps and futures are pricing in a roughly 35% probability of a quarter-point hike, prediction markets such as Kalshi and Polymarket see a slimmer 26% chance. That means an investor seeking to bet on such a move stands to gain more on prediction sites, if they can navigate the thinner trading conditions compared to the multi-trillion dollar derivatives market.

About 29% of Wall Street traders expect the Fed to raise interest rates this week. However, 76% now see a rate hike coming in September, up sharply from 59% a month ago, according to the CME FedWatch tool.

Emerging-market stocks plunged for a second day as a rout in Asian chip stocks deepened, while most currencies weakened ahead of the Federal Reserve’s interest-rate decision.

The MSCI Emerging Markets Index for equities was down 1.5% as of 12:17 p.m. in New York, hitting its lowest in over three months. South Korea’s equity benchmark has tumbled 16% in just two days, with SK Hynix Inc. sinking after its profit jumped short of expectations.

Hungary’s forint, South Africa’s rand and Mexico’s peso were among the biggest losers in a basket of 22 developing world exchange rates tracked by Bloomberg. Traders are awaiting the Fed’s decision this afternoon, with overnight interest-rate swaps implying about a 36% chance of a quarter-point increase, with the remainder of the odds favouring no change.