Fed Holds Rates Steady; Three Members Wanted a Hike

The Federal Reserve kept interest rates unchanged at its July meeting, but the decision was not unanimous. The Federal Open Market Committee voted 9-3 to hold rates steady. Three members wanted a quarter-point increase. It was the first split vote under new Chair Kevin Warsh, a former Wall Street executive. Warsh called the debate "a good family fight." He said the committee carefully considered the Iran War, stubborn inflation, the job market, and financial market moves. The market reaction was volatile. Stocks fell sharply. The Dow dropped more than 1,100 points, or 2.18%. The S&P 500 fell 1.5%, and the Nasdaq 100 lost 2%. Bond yields rose. The 30-year Treasury yield hit its highest level since 2007. **Warsh develops his own style** Warsh is building a distinct communication style. He starts press conferences with "good day" instead of the former chair's "good afternoon." He opposes forward guidance. He wants markets to react to real-time information, not Fed predictions. The July statement was nearly identical to June's, with less than one sentence changed. This is a break from past FOMCs, which provided detailed economic analysis. Warsh will give the keynote address at the Jackson Hole Economic Symposium in August. He said he will focus on big questions about productivity, demographics, and the global economy. **Letting markets take the lead** Warsh wants the Fed to operate more like a corporation. He wants markets to lead, not follow the Fed. "Market participants are learning to play the ball, and not the referee," he said. He said allowing markets to react to news and economic shocks is better for the economy. The Fed remains committed to its 2% inflation goal. "The path to central bank heaven," Warsh said, requires delivering on price stability.