Fed Holds Rates Steady and Bond Yields Surge to 2007 Highs

The Federal Reserve kept its key interest rate steady on Wednesday, July 29, marking the fifth straight meeting with no change. While the central bank chose not to raise rates, the 30 year Treasury yield jumped to 5.21 percent, which is its highest level since 2007. Three Federal Open Market Committee members actually voted for a rate hike instead, creating the first three way dissent in the same direction since 2016.

Traders and investors were left frustrated because Fed Chair Kevin Warsh offered no forward guidance on inflation. Rising oil prices due to tensions between the United States and Iran had markets wanting firm action. Instead, Warsh stated he wanted markets to react to real data rather than Fed hints. This lack of clarity caused long term borrowing costs to climb, with the 30 year fixed mortgage rate hitting 6.58 percent last week.

Bitcoin and gold both climbed within minutes of the announcement as some traders interpreted the split vote as inflation friendly. However, Bank of America economists noted that the confusion could push the Fed toward a rate hike in September. Investors will now watch upcoming inflation and jobs reports closely to see how the central bank handles its next steps.