Fed Chair Kevin Warsh delivered a US rate hike, the first in over three years, joining his colleagues for a unanimous decision that calmed global bond markets.
Many investors saw the meeting as a test of independence for Warsh, after he was selected by Trump with an expectation that he would cut rates.
On that score, Warsh appeared to deliver, reinforcing his inflation-fighting credentials with a hawkish policy statement that suggested price pressures were too broad for comfort, and not just due to supply shocks from the Iran war.
Treasuries advanced on Thursday as investors were reassured, a marked contrast to the reaction US Treasury Secretary Scott Bessent got on Tuesday when the 10-year Treasury yield rose above 5% as he testified before Congress.
Bessent’s defence of Trump’s recent election pledge, a $5,000 “dividend” for American adults that would cost over $1 trillion, did little to comfort investors worried about US deficits.
The market is pricing in a 90% probability of a follow-up quarter-percentage-point Fed rate hike by the end of this year after updated quarterly economic projections showed 16 of 18 policymakers anticipate at least one more increase before 2027. Warsh didn’t submit any projections but if the Fed does hike again the spotlight will fall on him.
Trump criticised the increase to the policy rate but stopped short of blaming Warsh. A future move might not get such a benign response from the White House particularly if a move comes in October, ahead of the November's mid-term elections.
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