30.07.2026 - Fed: No change - but
As widely expected, the Federal Reserve left its benchmark interest rate unchanged at 3.50%–3.75%, despite markets assigning roughly a 30% probability of a rate hike ahead of the meeting.
The FOMC voted 9-3 to keep interest rates unchanged, with three members dissenting in favor of an immediate rate hike. The split highlights growing concern within the Committee that inflation risks remain elevated.
Warsh reiterated the Fed's commitment to restoring price stability.
"Inflation remains elevated, and the Federal Open Market Committee is firmly committed to ensuring price stability. We have one objective, and that is 2% inflation."
Markets reacted with significant volatility throughout the announcement and the subsequent press conference.
One notable move came in the Treasury market. The 30-year Treasury yield climbed to its highest level since 2007, while the 2-year yield declined, further steepening the yield curve.
Following the meeting, futures markets increased the probability of no rate change at the next meeting to 35%, while pricing a 65% probability of a rate hike in September.
Markets:
Equities: European markets continue to outperform while US futures stabilize after yesterday's decline.
Bonds: Mixed performance. Long-term US yields moved higher while the 2-year yield eased slightly - US 10y yield above 4.7%, Japan 10y yield 2.80%
Commodities: Oil prices resumed their advance, WTI around USD 85/barrel and Brent around USD 92/barrel
Precious metals: little changed, gold at USD 4’060/oz, silver trades above USD 57/oz
Currencies: USD little changed after yesterday's drop
Cryptos: moving higher - Bitcoin at USD 64k
Volatility: The VIX briefly moved above 20 before easing slightly below that level
My View: The Fed left interest rates unchanged despite several factors that would traditionally argue for a more restrictive stance: oil prices remain elevated, a new wave of tariffs is adding inflationary pressure, uncertainty has increased, and inflation continues to run well above the Fed's 2% target.
I continue to hold what remains a relatively isolated view: the Federal Reserve is running behind the curve, particularly if energy prices remain elevated or move even higher and the economy avoids a near-term recession.
Even more important than the decision itself is the new communication framework under Kevin Warsh.
After two policy meetings, it remains difficult for investors to assess how the new Fed Chair intends to conduct monetary policy. Unlike the Powell era, the Federal Reserve no longer publishes projections for interest rates or the broader macroeconomic outlook. Investors therefore receive far less insight into how policymakers assess the economy, the inflation outlook, or the likely path of future policy.
For financial markets, this represents a significant shift away from the transparency and forward guidance that have characterized the Fed over recent years.
Ironically, while Warsh's comments were intended to project confidence and stability, they have instead created greater uncertainty. The Fed's decision to leave rates unchanged appears difficult to reconcile with its own message that inflation remains elevated and that returning inflation to 2% remains the central objective.
Looking ahead, I believe investors should also recognize how dependent the current US economy has become on the ongoing AI investment cycle. Much of today's economic strength is being supported by unprecedented capital spending on artificial intelligence infrastructure. Should that investment cycle slow materially, the economy could quickly transition from solid growth toward recession, or, even more challenging, stagflation.
In that scenario, the Federal Reserve would eventually be forced to cut interest rates. However, if inflation remains elevated because of higher energy prices or persistent tariffs, those rate cuts would likely come later rather than sooner, leaving policymakers with very limited room to maneuver.
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