The Federal Reserve left its benchmark rate at the range of 3.5% to 3.75% on Wednesday, with three policy members dissenting in favor of a quarter-point increase. Long-dated Treasury yields rose on the decision, and West Texas Intermediate crude futures advanced 6.9% as the conflict in the Middle East escalated.
The benchmark 10-year Treasury yield traded more than 3 basis points higher at 4.641% on Wednesday after the Federal Reserve held its key interest rate steady. The longer-dated 30-year Treasury bond yield gained 5 basis points at 5.141%. The 2-year note, which more closely tracks short-term Federal Reserve interest rate policy, traded flat at 4.265%.
One basis point is equal to 0.01%, and yields and prices move in opposite directions.
Three members dissent in favor of a hike
The rate-setting Federal Open Market Committee left rates unchanged at the range of 3.5% to 3.75%. The move came with some opposition, with three policy members dissenting in favor of raising rates by a quarter percentage point.
Ian Lyngen, BMO's head of U.S. rates, wrote in a note that the majority is siding with Warsh to keep rates stable until at least September, when policymakers will have the benefit of the July and August CPI reports.
Warsh points to inflation risk
Fed Chairman Kevin Warsh took over a Fed that has seen inflation exceed its 2% target since 2021. The consumer price index posted an unexpected decline last month, bringing the annual inflation rate down to 3.5% in June.
But oil prices jumped again in the weeks that followed amid the escalating conflict in the Middle East. Warsh stressed that the committee will be quick to act if inflation pressures accelerate, telling a press conference: "where necessary and appropriate, we will not hesitate to act".
Energy prices spike after Trump's Iran comments
Energy prices spiked again Wednesday after President Donald Trump told a Fox News reporter that the U.S. will be hitting Iran hard in response to the surprise attacks. West Texas Intermediate crude futures advanced 6.9% to trade at $89.88 a barrel.
Iran targeted American forces in the Middle East with ballistic missiles, U.S. Central Command said late Tuesday. Centcom said in a post on X that the attack originated from Iran and that all missiles were intercepted.
Source: CNBC
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