Heading into this Fed meeting, for the first time in a long time- at least since 2022- there was a real question as to what action if any the Federal Reserve would take. Since the last meeting inflation data came in better than expected and the labor market data also moderated. As oil prices moved higher with the escalation in Iran rates rose and calls for a hike at this meeting grew louder. Ultimately there was no rate increase and the language in the statement was also unchanged.

During his prepared comments Warsh highlighted the recent move higher in real yields, which he noted was one of the largest intra-meeting on record, suggesting this was in part due to a removal of forward guidance. The markets initial read was dovish with yields, particularly the 2yr, moving lower (partially positioning-related) and equities rallying. However, 10 and 30y yields started to move higher during Q&A, when reporters began to zero in on 1) the inflation framework, including how its measured, and 2) “what are you waiting for” to hike rates. There were no definitive answers and the long-end responded by discounting more path uncertainty and potential for the Fed to fall behind in its inflation fight- not like it was in the lead. The 30y breached 5.20%, back to YTD highs.

As far as market expectations go, the lack of a hike today shifted the September fed funds pricing. Odds that the Fed keeps rates unchanged at the next meeting in September rose from 24% yesterday to 37%. For the rest of the year, cumulative rate hikes fell from 40bp yesterday to 33 today, back where they were a month ago. Equity markets rallied during the beginning of the press conference but failed to clear yesterday’s high (or reclaim the 50d ma) before turning sharply lower in the final hour of trade. The S&P 500 fell 130pts from the high, ending at session lows down 1.5%.

After the close the Meta missed numbers and is trading down >5%. Microsoft is trading modestly higher after strong Azure results. Looking ahead tomorrow it will continue to be busy on the earnings front. Economic data will be substantial, with PCE/GDP providing a quick and important follow-up to Warsh's commentary on the inflation flight and economic resiliency. We'll also get weekly claims, and the BoE will have a rate decision of its own.