Markets were left to their own devices for the first time in a generation after Warsh scuttled forward guidance as part of his Regime Change.
By Wolf Richter for WOLF STREET.
The FOMC kept its five policy rates unchanged in the range of 3.50% to 3.75% after “a good family fight,” as Warsh has called the process repeatedly since becoming Chair.
Some of the disagreements spilled out into the open with 3 dissenters – Beth Hammack, Neel Kashkari, and Lorie Logan – who preferred a rate hike. Let there be dissents; they’re a breath of fresh air.
With Warsh staying away from anything even remotely smelling of forward guidance, there was unusual uncertainty in the markets about the outcome of this FOMC meeting.
The CME FedWatch Tool, which tracks the Federal Funds Futures market, assigned a 33.7% chance of a rate hike and a 66.3% chance of a hold still hours before the release of the FOMC statement.
In the Treasury market – left to its own devices without forward guidance – the 2-month Treasury yield spiked last week, indicating that investors in that maturity started penciling in a rate hike at this meeting. These securities mature at around the time of the FOMC’s September meeting, and so that portion of the bond market doesn’t care about a September rate hike, but these buyers wanted to be paid for a rate hike they expected at this meeting.
Upon the release of the FOMC statement today, the 2-month Treasury yield instantly plunged by 7 basis points.
The FOMC statement was terse and devoid of forward guidance, at 166 words, not counting the contact info and links, compared to the 341 words of the last statement under Powell. A terse statement devoid of forward guidance was one of the first acts of Warsh’s “Regime Change” at the last meeting.
The statement was primarily worried about inflation, and less worried about the economy and labor market. That shift had started in March under Powell.
There was only one change beyond of the number of votes and listing the dissenters:
New: “The Committee is continuing its policy of maintaining ample reserves in the banking system.”
Old: “The Committee reaffirmed its policy of maintaining ample reserves in the banking system.”
This was a no-dot-plot meeting. In past years, the FOMC released a “Summary of Economic Projections” (SEP) quarterly, after 4 of the 8 FOMC meetings a year. The SEP includes the “dot plot” that indicates how each FOMC member sees the development of future policy rates, inflation, GDP growth, and unemployment.
The June meeting had been a dot-plot meeting, but Warsh, having declared war on forward guidance, didn’t submit his projections to avoid giving forward guidance, and thereby began torpedoing the dot plot. And there may be no more dot plots in the future. But if the FOMC releases another SEP, it will be after the September meeting.
The whole statement:
The Federal Open Market Committee approved the following statement for release by a 9 – 3 vote:
The Committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent, in support of the Federal Reserve’s dual mandate. The Committee is continuing its policy of maintaining ample reserves in the banking system.
Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little.
Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability.
Voting against the monetary policy action were Beth M. Hammack, Neel Kashkari, and Lorie K. Logan, who preferred to raise the target range for the federal funds rate by 1/4 percentage point at this meeting.
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This really isn’t a totally surprising result. The interest lies in the “exposing” the voters in dissent. This may be foretelling of pressure being applied to committee members to actually approve a hike in September. This also gives Trump until next meeting to end the Iran conflict, get energy prices under control. If not done, a hike is most likely.
Candyman –
“This also gives Trump until next meeting to end the Iran conflict, get energy prices under control”
Your assumption is that he has control. I’d argue that he lost control but that is a separate topic for another day. Cheers!
Not really August is Jackson Hole and he needs to deliver his “vision” speech then. I guess he can do the “WarshWaffle” again in August to defer to September lol
Hes got til Oct before the US has a real oil issue. And he has time to make a deal with China so he can kick the can til after mid terms. He is in no hurry.
Why is there no oil issue until after October, is that when we hit the projected limit on how far we can draw down the strategic reserve?
Trump wants inflation
we got it under Biden and now we’re in 70’s inflation mode
higher and higher until the economy implodes
then after dimwits get grifter CONSgress back we can spend spend spend
maybe we’ll get 2nd INFLATION PRODUCTION ACT like biden did
“This also gives Trump until next meeting to end the Iran conflict…”
“Wars begin when you will, but they do not end when you please.” – Macchiavelli
That is, when you start a war, you don’t get to decide how it ends. This might go on a lot longer and end a lot differently than conventional wisdom suggests. How long did it go on in Iraq? Why should Iran be very different?
The election is November 3rd, 2026. Iran will try to maximize economic disruption leading up to that day, to leverage the weapons they have. The Houthis appear to be looking to close Bab el Mandeb, the other major oil and trade strait. Also realize that Russia and China are eager to undermine US power so it’s not just desert nomads in technicals firing RPG’s at distant silhouettes. Russia and China can provide strike intelligence, like the US provides in Ukraine.
I suspect the Fed will have a timid rate hike in September and wait to see what happens on November 3rd.
How do you deal with supply shock inflation combined with low interest rates plus money-printing hangover inflation? Vietnam plus Arab Oil Embargo timeframe I think provides a historical model to contemplate.
Perhaps you are correct or not. IMO the Fed, while maintaining an abundant reserve philosophy do hereby declare that interest rates reflecting risk is so passe.
Listening to Q&A period now. So the FED is going to let the market direct rates – what could be the consequence of that if the market takes the 10Y to 5%+?
Kashkari being one of the dissenters was interesting.
So by Warsh not dissenting suggests he doesn’t really want to do anything if possible.
I’ve put in a purchase order for a ten year note at the August auction and am very happy to get near 5% or better on that money for the next decade. By November if the Fed doesn’t get ahead of it maybe 5.5%?
A Chair cannot dissent. His job is to build a majority. If he dissents, he is finished as Chair.
The first law for learning mathematics is too understand the problem.
The Fed punted.
The Fed & congress have driven CPI to over 2% for the past 5 years. CPI is now at 4.2%.
Americans can’t afford groceries or rent. The Fed doesn’t care about raging inflation. All the Fed cares about is the stock market.
My imagination is limited, so I don’t see a benefit to any of this.
I see not one adult at the table in D.C.
No increase, not surprised, bankstreet wins.
Wall Street breathes a sigh of relief as the Federal Reserve holds rates steady
The Federal Reserve held its key interest rate steady as the US central bank concluded its two-day July policy meeting.
“Wall Street breathes a sigh of relief”
Just one sigh of relief. Then back to red. Right now: S&P -0.8%, Dow -1.7%, Nasdaq -0.7%. 10-year yield +5 basis points to 4.66%.
5 basis points doesn’t feel like enough. I think there needs to be a reaction from the bond market that enough is enough, that the fed cannot ignore.
Even the stock market reacted badly, for some reason. Things at closing bell were even worse. Curious about Big Tech earnings today.
Crazy stuff.
It’s already 9 basis points by now.
Interesting headline on CNBC this afternoon – “Dow drops 1,100 points for worst day since April 2025 on fear the Fed is falling behind on inflation”
Wall Street didn’t “breathe a sigh of relief”
Your title says volumes – “….after Enormous Uncertainty in the Markets.”. There is indeed massive uncertainty in the markets, especially housing, and the Fed knows that an interest rates hike will tank the already sick housing market into depression territory. The housing market is maintaining the illusion of ‘everything is A-ok’. We are living in interesting times.
Read the article, not just the headline. This was about markets pricing in the chance of a rate hike…. since this is a Fed article, not a housing article.
As we speak, the 10-year Treasury yield is up 5 basis points, which pushes up mortgage rates
“since this is a Fed article, not a housing article.”
The last 25 years have pretty much illustrated that they are welded at the hip.
My articles are not welded to anything.
20 year hit a new high since 10/23 at 5.232
30 yr almost there too
Interesting the comments on CapEx spending I thought as truly not a bad thing but it does have to materialize as needed and in the correct areas. That won’t be answers we have in the short run however although some worrying signs in AI sector.
Bad News; New Federal Reserve “boss” same as the old boss and will keep inflation raging.
Good News: New Federal Reserve is going to limit their communication so at least we won’t be “gaslighted” about all the Federal Reserve’s “tools” and the public can clearly see they (FOMC) are “tools” themselves.
Neutral News: Corporate press can keep spouting nonsense about the FOMC like it is some kind of caged wrestling match.
Neutral News: Thousands of years of human regimes inflating prices with debased or paper currency to fund oligarch decadence and maintain bloated empires will continue with all enablers already on the “ash heap of history;” where in the near future a completely discredited Federal Reserve will be studied in children’s history books.
If FED was really serious about taming inflation, they’d have at least done a symbolic hike of 25bps.
FED has enabled gov for profligate spending and I don’t see it stopping.
The only game in the town is :: Inflating away the debt via Inflation.
I hereby coin the phrase “The Warsh Waffle” … there will be no hikes next year till expectations are 100% LOL
“whitewarshing” inflation
Wolf, could you kindly share your BTL opinion abour Warsh’s intentions?
Do you think he is “looking through” inflation that was on the rise even before the unpredictable and hopefully transitory Hormuz woes?
Can the bond market end up regulating the economy even if the Fed stays dovish?
“The Committee will deliver price stability.”
How, exactly and when are they supposed to do that? Doesn’t it look like they are actually content with a moderately elevated inflation rate?
Thanks in advance
Warsh made sure today that at least one of his intentions was clear: Do not let forward guidance, or anything like it, pollute the information the Fed gets from the market. He was proud of the fact that Treasury yields have surged since the prior meeting, that markets are doing their jobs, and are tightening financial conditions in response to the data they see, and not in response to what the Fed is telling them. He said this over and over again today. He said that ending forward guidance is already working; markets have already tightened financial conditions; nominal and real rates have already risen; markets are already doing the heavy lifting but based on the information they get from the economy, and not directed by the Fed. He was really proud of that. “Look, it’s working,” is kind of what he said.
If the bond market can just do the tightening itself, what would prompt the FED to tighten? Is the idea that markets will fix inflation on their own? I think I get the idea and I like the lack of forward guidance idea. But I don’t fully see how it plays out. Does the FED just follow the market. IE bonds are up so next meeting is a hike sort of thing?
I guess I just think back to 2021-2023 and wonder if the same methodology was used would it have worked? Do treasury yields increase enough on their own to fight inflation or might they just be sort of always a little behind? I’m guessing the FED would be nuanced about it and not just blindly do what the market is doing.
Similar musings here.
I suppose Warsh could also now find it easier to gather enough votes for a .50 basis point rate hike at one of the next meetings and tell the markets to suck it up if they complain about being ambushed, since he warned them there wouldn be no more forward guidance.
Not surprising.
I guess it’s time to invest as if we are going to be running around 4% + inflation, likely much higher, for years and years going forward. What works in that environment? Maybe stocks are cheap given where inflation is going.
At some point if you can’t beat inflation, you have to embrace it.
Bingo.
You embrace inflation by enjoying poverty.
They must of saw the PCE number, out tomorrow, which they can tout as cooling. Because if it comes in hotter than expected there will be a lot of head scratching.
No, he already wrote that off, saying that one month of cool data doesn’t really matter. They’re looking at trends, he said.
A question regarding the “supply shock”, with a particular call out on energy, referenced in the statement:
Though Iran keeps sucking the US back in, I can see why the Fed could look through gas/diesel increases and their second order effects on prices. While the situation hasn’t resolved, it at least appears transitory, unlike, say, Russia’s invasion of Ukraine. At what point, though, does the Fed start to worry about the SPR?
Updating Wolf’s article from June 15, according to the EIA numbers, we are now at the lowest levels since March 1983. The SPR has decreased about 26% from the start of the Iran war/conflict/kerfuffle (415,441,000 barrels on February 27 to 307,650,000 barrels on July 24). 307M barrels still seems like a hell of a lot, but the rapid rate of decrease and the historical comparison (applying time value of money concept to oil barrels) seems like it should be disconcerting. Put another way, does a low and decreasing SPR not signal even more supply shocks in the future? Or has the US become such a massive producer, as Wolf has pointed out, than the Fed assumes the SPR can be refilled internally?
Are you sure it’s Iran sucking us back in?
That oil that came out of the SPR went to exports. Some crude was directly exported, and some went to refineries, and the resulting gasoline, diesel, jet fuel and other products were exported. The SPR is used to bring down GLOBAL oil prices via exports, not add supply to the already oversupplied US. The US is a HUGE exporter of these petroleum products, especially diesel. Though the US produced a huge amount of diesel, there is not a lot of demand in the US for diesel since few passenger vehicles run on it; but there is huge demand for diesel in Europe where the majority of passenger vehicles run on diesel. Even refineries along the US West Coast exports diesel, gasoline, and jet fuel, primarily to Mexico and Central America. People are always shocked to hear that our sacred SPR is used for exports. But that’s the purpose now: bring down global prices, not US prices.
Wolf, it makes sense to use it, particularly if we can refill it easily. I just don’t know how easily we can refill it, thus my question on whether the Fed would ever consider it in their concern over supply shocks. However, I just read section 161 of the EPCA which states that the SPR cannot be drawn down past 252,400,000 barrels so it looks like there is a hard and fast limit. Thanks for the response!
Also seem to be looking through ai capex inflation. Chips go in a lot things beside ai related businesses. Construction materials go in a lot of things besides data centers. Energy usage will be up permanently if all these data centers get built…
With such a strong labor market, I don’t get what the caution is against hiking? We panic and cut the moment there’s even a hint of weakness in the job market. We however, ignore most obvious signs of inflation as transitory. It’s very lopsided.
Most of the board members have spent their entire careers fighting the great war on deflation. Change is hard.
Perhaps it is time for those folks to declare glorious victory in the great war on deflation, take a big time victory lap, and move on to the next/current circumstance.
Nothing of actionable value resulted from Warsh’s presser. Its good the Fed is moving away from being the stock market enabler that started with the Greespan put.
It should also do away with Jackson Hole, attendance at Davos and foreign travel by Fed governors. The latter activity the most egregious waste of money and lacking in substance.
As for all the committees, sounds like the billionaire chamber of commerce.
What was not asked of Warsh if anyone important is giving him forward guidance.
It was actionable for the markets:
https://wolfstreet.com/2026/07/29/stocks-tank-long-term-treasury-yields-jump-after-warsh-starts-talking/
From the band “The WHO” : “Don’t get fooled again”. New boss, same as he old boss. Walsh is morphing into J Powell 2.0. Keeping interest rates fixed while the long term rates keep moving up with inflation and bond vigalantees start warming up the bullpin. There were 3 desenters on the Fed. Next meeting he will be overruled with a majority favoring a rate hike.
Isn’t most debt priced off the 10yr? So I guess at a certain point it won’t matter what the fed does because the bond market will control things like mortgage rates and corporate debt.
RIP Dotty Art Project
Very happy about this – let’s give it some breathing room and see where this goes. Everyone is focused on the dissents (which are healthy, to be sure) and ignoring the majority…
We knew the market would test the Fed; they same keen on this. Let the tantrum commence!
Mission accomplished by The Fed, as far as I’m concerned. Long term rate hike, increasing the cost of debt, and providing reasonable returns for corporate and real estate bond holders. The FOMC’s decision-making paralysis on the front end of the curve, lead to the “right” result at the long end. As I expected, any relayed in my comments here after the last FOMC press conference, Warsh is falling flat on his face.
Since the end of QT in favor of Ample Reserves, inflation is raging anew.
“We’re going to let it run hot” is alive and well. The FED has zero credibility as an entity which holds inflation in check. F**k these a**holes.
Of course Warsh/Fed majority didn’t raise.
It would take a massive inflation number for him/them to raise before the midterms, and if it doesn’t go soon, then he’ll “relax” his forward guidance fatwa and push until after December.
They’re usually late. They will definitely be late with the most Keynesian president since FDR.
this’ll be my last comment today and it is slightly off topic
I received an email from Redfin stating that
“Mortgage rates hold steady – for now.
The Fed left interest rates unchanged, meaning mortgage rates are likely to stay relatively stable for now. However, new economic data over the next several weeks could shape what happens to rates later this fall.”
these people know full well that the FED doesn’t control mortgage rates. The bond market’s reaction to the FED may or may not move rates. So tired of this braindead stuff, coming from “Reputable Sources” like Redfin.
“Reputable Sources” like Redfin….
Thanks for the laugh. I needed it!
It’s not clear where the additional votes for rate increases will come from in September. Hammack, Kashkari & Logan have been sounding the alarm on inflation since April. The influential dovish core of Powell, Williams, and other governors do not support rate increases – and to them every inflation driver is a temporary shock or transitory.
I can’t get my head around the 2 % drop .
over bought sector ?
a cumulative effect of “short term higher energy priced maybe higher interest and an over bought sector” ?
“Productivity growth and capital investment are strong.
Job gains have kept pace with the workforce, and the unemployment rate has changed little.”
I get eliminating of forward guidance we have been stung by that before and
Warsh is taking a more Realistic approach.
Higher inflation although I doubt the market is to concerned with this rate. I heard the market overbought and waiting on forward movement in areas of construction
Ronald Reagan:
““The Federal Reserve is an independent agency, and I respect its independence.”
“Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man.”
“I have no intention of publicly criticizing the Federal Reserve.”
Paul Volcker:
“The Federal Reserve’s job is to take away the punch bowl just as the party gets going.”
“The standard of living of the average American has to decline.”
“Inflation is the cruelest tax.”
“The truth is, we have been living too well.”
“Credibility is the key to monetary policy.”
“If we fail to deal with inflation now, the damage will be much greater later.”
The South Korean Kospi exchange has fallen 44% in the past 10 days including the 10% drop today and red alarms went off today and the Kospi had to be shut down for days ahead due to trading rules and has officially hit the proverbial brick wall at 200 mph. What has led that significant movement is memory stocks such as SK-Hynix which turned out to be just commodity stocks like potato chips and were part of the ‘AI revolution.’
Jeff Gundlach completely laid into Warsh on CNBC, where Jeff is normally very folksy in his interviews:
Gundlach is a bond manager and rising yields create a bloodbath for bonds and bond managers like Gundlach. He loved it in mid-2020 when the 10-year yield headed to 0% and he promoted the idiocy that it would turn negative. He wants Warsh to talk down yields. But Warsh refused to do that. Powell used to do that.
Nick Timiraos is effectively out of a job. Maybe Fauci will pick him up. He needs a new press spokesman.