Dimitra DeFotis
Senior EditorLive Updates: Fed Interest Rate Decision
Dimitra DeFotis
Senior EditorWhat About CPI and Retail Sales? "Data points are noisy"
2:45 ET: Fed Chairman Kevin Warsh was asked about data dependence, the market focus on August CPI, and how the Fed might approach future communications. Warsh responded that market participants and reporters have grown accustomed to "waiting breathlessly on a data point. That is not my view. Not retail sales this morning, or CPI last week. Data points are noisy. Markets over time will come to understand how this Fed makes decisions."
Asked if rates are restrictive, Warsh said he and his colleagues were hard pressed to describe it that way.
"A neutral rate is an academic view," he said to a question. Does it have operational impact? No, he said.
The S&P 500 (SPX) is down 0.12%, while the Dow Jones Industrial Average ($DJI) is down 0.7%. The yield on the 10-year Treasury is at 4.99%.
Fed Chair Warsh Answers Questions: On Trump: "Got Nothing For You"
2:42 ET: When asked about oil price threats, especially based on war impacting the Strait of Hormuz, Chairman Warsh said the Fed can make sure there are not second and third-order effects.
Answering about the future rate hike trajectory, Chairman Warsh said, "I am not going to prejudge any future decisions."
The Fed has an enormous amount of power. We made this decision today based on our assessment of the situation, employment, the strength of the economy.
When asked what his message is to President Donald Trump, and the possibility of lowering rates? "I've got nothing for you," Warsh said. But on a question about his message to the American people, the least well off have the most to gain from stable prices. The decision we made ... because of the underlying strength of the economy, we can be focused on stable prices. today's action is consistent with that.
What Fed Chairman Kevin Warsh is Saying
2:35 ET: The committee is maintaining ample reserves. Economic activity is expanding at a solid pace, with elevated uncertainty due to geopolitics, but productivity, job growth are good. Inflation, however, remains elevated.
The price increase leads to a timely pace to the Fed 2% inflation target.
"We removed a dose of accommodation."
"Appreciate the resilience of the U.S. economy."
One basic sign of strength is the U.S. labor market. Job openings increasing. Unemployment consistent with full employment. Labor side is OK.
Yet for more than five years, inflation has been moving above target. The plain fact is that inflation is too high and has been for too long.
We "must be confident, clearly, with sufficient speed ..."The unanimous vote showed that price stability needs to be reached more quickly.
"The Fed has a role in sustaining the economic progress happening in America now. Those who are least well off" have the most to gain from a strong economy and price stability.
The S&P 500 (SPX) reversed course, down 0.15%, while the Dow Jones Industrial Average ($DJX) was off by 0.55%.
Details on the Fed's Unanimous Decision
2:25 PM: The Fed's statement: “Inflation remains elevated,” the committee said in its brief post-meeting statement. “Today’s policy action will support a timelier return to the Committee’s 2 percent goal. The Committee will deliver price stability.”
The decision was unanimous, 12-0, meaning there were no dissenters. The Federal Reserve median forecast signals one more rate hike later this year which would push the Fed Funds rate to a range of 4.0% to 4.25%.
The Fed sees the headline personal consumption expenditures price index at 3.7% and core excluding food and energy at 3.4%, both 0.1 percentage point higher than the last update in June. The Fed doesn’t expect to reach its inflation target until 2029, though it sees both measures dropping off sharply in 2027 – 2.3% for headline and 2.5% for core.
Markets Focused on Fed Press Conference at 2:30 PM ET
2:20 PM ET: The market action will come in the press conference, with the language in the statement much shorter than in past years, with no commentary about supply shocks, says Art Hogan, Chief Market Strategist, B Riley Wealth Management.
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Why is the Consumer Absorbing Higher Prices, With Slowing Wage Growth?
2:13 PM ET: We may have more interest rate hikes until the consumer resists price increases, including energy prices, says John Lonski, President, The Lonski Group, former Chief Economist, Moody's Investors Service. But the Fed may be troubled by this fact, with prices still rising outside of energy, he says, and to get to the 2% price target, consumers need to be saying, "No more."
The 10-year Treasury yield is now near 4.957%.
Companies outside of high-tech benefit from AI data center buildout, and "as a result, maybe that makes it less likely that we are going to see more than one or two rate hikes," Lonski says.
FOMC Hikes Rate 25 Basis Points
2:05 PM ET: The Federal Open Market Committee (FOMC) announced a unanimous 25-basis-point increase in the Fed Funds rate, to between 3.75% and 4.00%, in its first hike since July of 2023.
The unanimity was a bit of a surprise, but major indexes took the decision in stride: The S&P 500 Index was up, and the Dow Jones Industrial Average ($DJI) was flat. The 10-year Treasury yield was down before the decision to 4.945%. The 10-year yield reached 5.02% Tuesday, its highest level since 2007. Going into the decision, the CME FedWatch tool showed a slight decline in the probability of a 25-basis-point rate hike from roughly 93% Tuesday, to about 89%. One more increase in 2026 was a median expectation.
As noted in Fed Day: Will the Federal Reserve Hike Interest Rates?, the Fed Summary of Economic Projections (SEP) released today offers a glimpse into how it views the current inflation backdrop, labor market and GDP prospects.
