Overview
- The Federal Open Market Committee voted 9-3 on July 29 to keep the federal funds rate at 3.50%–3.75%, with three regional presidents dissenting and favoring a 25 basis-point hike.
- Chair Kevin Warsh declined to give concrete forward guidance after the meeting, which pushed policymakers’ intentions into markets and helped lift long-term Treasury yields.
- Market-implied odds of a September rate increase rose sharply in the weeks after the meeting with tools like the CME FedWatch showing probabilities that have ranged roughly between 35% and 60%.
- Goldman Sachs argues those market bets are too aggressive and puts its internal probability of a near-term hike near 25% while keeping a base case that the Fed holds through 2026; Moody’s Analytics’ Mark Zandi says the Fed’s silence could raise volatility and the term premium, which is the extra yield investors demand for long-dated Treasuries.
- The next test for markets and the Fed will be incoming July and August inflation readings, the Fed’s preferred PCE data and employment reports before the September FOMC meeting, which will determine whether traders’ higher hike odds are validated or reversed.