The Federal Reserve held interest rates steady on Wednesday, but three policymakers dissented in favor of a hike and equities sold off. The S&P 500 fell 1.5%, the Dow Jones Industrial Average lost more than 2%, and the 30-year Treasury yield reached its highest level since 2007. Traders now price a better-than-even chance of an increase at the September meeting.
Three Federal Open Market Committee voters voted against the hold at the Fed's July meeting, favoring a quarter-percentage point hike instead. Equities sold off the same session: the S&P 500 tumbled 1.5%, its worst second "Fed day" for a new chief in recent history, according to Bespoke Investment Group.
Three regional presidents break ranks
All three "no" votes came from regional presidents — Lorie Logan of Dallas, Neel Kashkari of Minneapolis and Beth Hammack of Cleveland. That is the highest number of members pushing for an increase since September 2016, according to Ian Lygen, head of U.S. rates strategy at BMO Capital Markets.
Chairman Kevin Warsh treated the split as intentional, telling reporters he asked for a good family fight and got one. He restated the Fed's resolve on inflation at his post-meeting news conference, where he said: "We've got no magic wand".
Stocks fall while long-end yields climb
Unease about potentially tighter policy helped put investors in a risk-off mood. The S&P 500's 1.5% fall left the index at 7,316.15.
The Dow dropped more than 2% — its largest daily decline since President Donald Trump's tariff policy hampered markets in April 2025. The Nasdaq Composite's slide dragged the index more than 10% off its all-time high and marked its sixth straight losing session, a first going back to 2024.
Long-dated Treasurys moved the other way. The 30-year bond roared higher by 11.5 basis points to 5.211%, its highest yield since 2007. Meanwhile the 10-year yield rose above the key 4.6% level as shorter-dated yields pulled back.
Traders lean toward a September hike
Fed funds futures now suggest a more than 57% likelihood of a quarter-point increase at the September meeting, according to CME's FedWatch tool. About 53% of Kalshi traders predict a hike, compared with 43% betting on another hold.
Warsh offered no clues on the Sept. 15-16 FOMC meeting, and the statement carried nothing on forward guidance or the reaction function. Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, said market pricing for a hike has likely been pushed forward and that September remains a live meeting.
Sources: US Top News and Analysis, Economy
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