Three FOMC members voted against holding US interest rates steady this week, preferring an increase — the largest opposition a Fed chair has met this early since the 1970s. Kevin Warsh, in only his second meeting as chairman, kept the benchmark rate in a range of 3.5% to 3.75%. Long-dated Treasury yields rose after the decision while the two-year yield fell.
Three of Kevin Warsh's fellow Federal Open Market Committee members voted against the decision to hold interest rates unchanged, preferring that they be raised, according to the policy statement the US central bank released on Wednesday. No Fed leader since the 1970s has faced opposition that large so early in their tenure, based on the record of FOMC dissents the St. Louis Fed maintains. Warsh took the chairman's seat busting for what he repeatedly called a "good family fight", and he appears to have had one at this week's two-day policy meeting, just the second he has overseen.
Burns and Volcker also drew multiple dissents in the 1970s
Arthur Burns had three FOMC members vote against his very first policy decision in February 1970. Paul Volcker met two objections at his first meeting and four at his second.
Most Fed leaders since 1970 have run into some opposition within their first year. Warsh's immediate predecessor, Jerome Powell, was one who bucked that trend, managing a string of unanimous decisions before the first dissent of his term was lodged in June 2019, his 11th meeting as head of the central bank.
Long-dated Treasury yields climbed after the hold
The Fed left its benchmark rate in a range of 3.5% to 3.75%, a decision that was widely expected, with the three dissenters favoring an increase of a quarter percentage point. Afterwards the 10-year Treasury yield rose more than 7 basis points to 4.681%, while the 30-year bond yield reached 5.213%, its highest level since 2007.
Yet the policy-sensitive two-year Treasury yield fell 3 basis points to 4.244%. The long end of the curve generally tracks expectations for inflation and deficits, while the short end follows interest-rate expectations over the shorter run.
DoubleLine Capital CEO Jeffrey Gundlach said the divergent moves across the Treasury curve showed investors' skepticism that the Fed will ultimately follow through. In his view, getting to 2% means the Fed has to raise interest rates, and he said it could take more than the next couple of years.
Warsh, meanwhile, stressed that the Fed will take necessary steps to meet its 2% inflation goal.
Sources: Investing.com (Reuters), CNBC
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