No Hike, No Cut, No Clarity
The Federal Reserve kept interest rates unchanged at 3.5% to 3.75% on Wednesday, a decision widely expected by markets. Still, several policymakers have recently signaled they are open to further tightening if inflation remains stubborn.
At his post-meeting press conference, Fed Chair Kevin Warsh reiterated the Fed’s commitment to its 2% inflation target, saying policymakers will respond as needed but won’t signal the future path of rates.
Treasury yields climbed after the announcement, with the 30-year yield topping 5.2% for the first time since 2007 and the 10-year rising more than 7 basis points to 4.677%.
Recent inflation data has offered some relief, with the consumer price index unexpectedly falling 0.4% in June as gasoline prices dropped. But fuel costs have since rebounded amid renewed volatility in the Middle East.
“We’re going to have an interesting set of data points between now and the September meeting,” said Jerry Templeman, vice president of economics and fixed income research at Mutual of America Capital Management. “I don’t think we’re necessarily going to be in the same position we are today.”
And Trump? President Donald Trump appeared to claim that Warsh would like to lower interest rates, but he's being held back by the policy-setting Federal Open Market Committee.
"Kevin's fantastic, but he's got a board,"
In my view the Fed failed to really tell investors what to expect and it is not clear whether interest rates will be hiked or lowered in the coming months. Tension and uncertainty remains. Not a good Setup for the Market.