Edward Hayden-Briffett
Research Analyst, The Officials
Warsh’s First FOMC, Big Tech Earnings Missed, Upcoming Data
Warsh's Fed held rates, yields surged, cuts repriced lower, inflation fears grew, and markets now await BoE, PCE and GDP.
Kevin Warsh’s first FOMC as Fed Chair received a blunt verdict from the bond market: hawkish language without action is losing credibility.
After the Fed held rates unchanged for a seventh consecutive month, 30-year Treasury yields jumped as much as 14 basis points to nearly 5.23%, a 19-year high (fig 1). They extended the move higher into today. The 10-year yield climbed one basis point to 4.71%, reaching its highest level since January 2025.
OIS pricing of the next 12 months has dropped from around 26 bps of cuts before the meeting to 16 bps (fig 2). Fewer cuts expected – but Trump praised Warsh!
Short-dated yields fell as investors reduced expectations for an immediate increase, while long-dated yields rose on inflation concerns. The resulting two-year/30-year steepening was among the largest after a Fed meeting since the mid-1990s.
The Fed kept its benchmark range at 3.5%–3.75%, unchanged since December, despite CPI inflation running at 3.5% against a 2% target and remaining above target for five straight years. Three officials dissented in favour of a hike.
Warsh, appointed Chair two months ago, argued that rising long-term rates are already tightening conditions. Markets instead interpreted the decision as delay. The reaction spread abroad: Germany’s 30-year Bund yield reached 3.687%, while the 10-year rose 3.2 basis points to 3.188%. Higher long-term borrowing costs risk tightening financial conditions without restoring Fed inflation credibility.
Big tech earnings were mixed; Microsoft beat EPS expectations, while Meta missed. Microsoft shares jumped nearly 7% overnight. The Kospi crash continues – the Korean index is now down more than 40% from its 19 June high.
Data today: Euro area GDP, Bank of England rate decision, US PCE and GDP
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