The Fed Decided to Do Nothing and That Decision Backfired: Here’s Why

The Fed held its key rate steady on Wednesday, July 29, for a fifth straight meeting. However, the 30-year Treasury yield jumped, hitting 5.21%, its highest level since 2007.

Three Federal Open Market Committee (FOMC) members dissented and voted for a hike instead. It's the first three-way dissent in the same direction since 2016.

Why Inaction Rattled Bond Traders

Markets wanted tough talk on inflation. Oil prices had climbed as tensions between the US and Iran flared up again. Instead, Fed Chair Kevin Warsh gave no forward guidance. He said he wanted markets to react to real data, not to Fed hints.

That vagueness, not the rate decision itself, moved the long end of the bond market. Steve Sosnick, chief strategist at Interactive Brokers, summed up traders' frustration.

"It's one thing to talk about fighting inflation. It's another thing entirely to do something about it. And again, it's not clear what he's doing about it."
- Sosnick

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