Wall Street traders whipsawed stocks as the Federal Reserve held off on raising interest rates, but signaled support of rate hikes is growing as officials assess the impact of the Iran war on inflation.
A resurgence in Middle East violence drove Brent crude above $90, spurring concerns about price pressures and dimming the appetite for riskier assets. The S&P 500 retreated, with the gauge also hit by a rout in chipmakers. In another sign of worries about inflation, 30-year yields climbed.
The Federal Open Market Committee voted 9-3 to hold the benchmark federal funds rate in a range of 3.5% to 3.75%. Dallas Fed President Lorie Logan, Cleveland’s Beth Hammack and Minneapolis Fed chief Neel Kashkari dissented in favor of raising rates by a quarter percentage point.
“A hawkish hold does not close the door on potential rate hikes as soon as September, but it offered some near-term relief to both equities and fixed income amid elevated uncertainty about the Fed’s path forward,” said Angelo Kourkafas at Edward Jones. “The three dissents were not surprising, though they may signal the direction of travel if geopolitical tensions persist.”
ALSO READ: FOMC Highlights: Fed Keeps Rates On Hold; Warsh Says ‘Won’t Hesitate’ If Inflation Persists
Upcoming inflation data will be critical in shaping the outlook, particularly as the labor market is not a concern at the moment, he noted.
While Fed officials led by Chairman Kevin Warsh strongly emphasized their commitment to tackling inflation, the central bank’s statement was identical to the one issued following their June meeting. The vote marked the fifth straight time officials have opted to leave rates unchanged.
“Keeping rates on hold instead confirms that Warsh is putting a little space – conceptually and in time – between reasserting credibility on inflation and assessing whether this then requires operationalizing in the form of one or more rate increases,” said Krishna Guha at Evercore.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 1.3% as of 3:40 p.m. New York time
- The Nasdaq 100 fell 1.5%
- The Dow Jones Industrial Average fell 2.1%
- The MSCI World Index fell 0.9%
- Philadelphia Stock Exchange Semiconductor Index fell 4.1%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.6% to $1.1451
- The British pound rose 0.5% to $1.3355
- The Japanese yen rose 0.3% to 163.44 per dollar
Cryptocurrencies
- Bitcoin was little changed at $63,805.33
- Ether fell 1% to $1,897.39
Bonds
- The yield on 10-year Treasuries advanced five basis points to 4.66%
- Germany’s 10-year yield advanced six basis points to 3.16%
- Britain’s 10-year yield advanced nine basis points to 5.04%
- The yield on 2-year Treasuries declined five basis points to 4.23%
- The yield on 30-year Treasuries advanced 10 basis points to 5.19%
Commodities
- West Texas Intermediate crude rose 7.2% to $84.96 a barrel
- Spot gold rose 0.9% to $4,066.03 an ounce
ALSO READ: ‘Won’t Hesitate To Act’: Fed Holds Rates, But Warsh Leaves Door Open For Future Hikes
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