Warsh Holds Rates at 3.5% Despite 4.1% Inflation as S&P 500 Drops 1.52%
Updated
Updated · Fortune · Jul 30
Warsh Holds Rates at 3.5% Despite 4.1% Inflation as S&P 500 Drops 1.52%
3 articles · Updated · Fortune · Jul 30
Summary
Traders now see a September rate hike as more likely after Kevin Warsh left the Fed rate at 3.5% even with PCE inflation at 4.1%, extending a five-year stretch above target.
65% of Fed funds futures traders expect the next move to be a hike, while the S&P 500 fell 1.52% and the Nasdaq 100 slid into correction territory, down more than 10% over the past month.
Warsh's defense centered on higher long-term market rates, but the 30-year Treasury yield climbed to 5.23%—a 19-year high—fueling claims that investors are demanding a credibility premium.
Wall Street criticism was unusually blunt, with analysts calling the decision and press conference a central-bank credibility shock because Warsh acknowledged persistent inflation yet did not tighten policy.
The market strain is unfolding alongside fresh U.S. strikes on Iran that pushed Brent crude above $90, reinforcing fears of a stagflationary supply shock.