Kevin Warsh said he wanted a good family fight at his second meeting as chairman, and three colleagues obliged. The Fed held rates at 3.50%-3.75%, but the vote was not unanimous, with three hawkish dissenters.
The notables.
- The FOMC votes 9-3 to hold, with Hammack, Kashkari and Logan in favour of a 25bp hike.
- The written statement was virtually identical to June’s and was deliberately bare-bones.
- Chairman Warsh insisted that the pause was “watchful thinking, not watchful waiting”.
- He shrugged off June’s cooler CPI as one data point, not a trend, and repeated his zero tolerance for inflation settling above 2%.
- The pullback in forward guidance is deliberate. Warsh wants markets pricing risk off real data, not off Fed signals (“play the ball, not the referee”).
- Five new Fed task forces are digging into how supply shocks, tariffs, energy, and AI capex are shaping the inflation picture. We expect more colour from Jackson Hole.
The implications.
- Heading into the meeting, the market was pricing a 33% chance of a hike today and a 100% chance of a hike by September. Post-meeting, the odds of a September hike are running around 60%.
- The Treasury curve steepened, with 2y yields -5 bps and 30y rates +11 bps.
