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Fed keeps rates unchanged despite 9-3 split, lifting long-end inflation expectations

After the July decision, markets reduced the odds of a September hike while the 2s10s curve steepened sharply, with the 10-year inflation swap staying just above 2.3%.

Reported · Written up by our desk · Central Banks

The Fed held monetary policy unchanged at its July meeting in a 9-3 decision, with Chair Warsh voting to keep rates on hold despite his earlier hawkish price-stability messaging in June, according to Action Forex.

Action Forex said Warsh emphasized that real rates had risen in the intermeeting period as markets responded to incoming data rather than forward guidance, and that his tone appeared more neutral than in his prior press conference.

Markets cut back cumulative hike expectations, with priced tightening falling from 56 basis points to 50 basis points, and the implied odds of a September hike dropping from near-certain to 65%.

Action Forex also pointed to a sharp steepening in the U.S. Treasury curve, measured by 2s10s, as long-end inflation expectations moved higher, citing a 10-year inflation swap at just above 2.3%, while noting the Fed made no balance sheet changes and maintained T-bill reserve management purchases of $10 billion per month.

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