Yields mixed as Fed votes to leave rates unchanged. Treasury yields rose this morning as President Trump threatened to launch retaliatory strikes on Iran in response to their surprise attacks last night. Yields whipsawed in the aftermath of this afternoon’s FOMC meeting as markets digested the decision and Fed Chair Warsh’s press conference. The 2-year yield ultimately closed 1bp lower at 4.27%, while the 10-year yield closed 7 bps higher at 4.68%. Meanwhile, equities slid on inflation concerns following the meeting, with the S&P 500 and NADSAQ closing 1.52% and 1.74% lower, respectively.
FOMC holds rates steady in divided decision. The Fed voted to leave rates unchanged at 3.50%-3.75% in a split 9-3 decision. Fed officials Hammack, Kashkari, and Logan dissented in support of a 25 bp rate hike, marking the first three-way dissent in the same direction since 2016. These three also supported removing the easing bias language in the post-meeting statement back in April. In today’s the press conference, Fed Chair Warsh reaffirmed the Fed’s commitment to fighting elevated inflation, despite not hiking rates today, saying that “This Fed will not waiver.” The full FOMC statement with a side-by-side comparison from the last meeting can be read here.
Tensions escalate as Iran launches strikes. Iran’s Revolutionary Guard launched multiple strikes on a US base in Jordan early Wednesday, the first direct attack on American forces since the recent pause in fighting. The US said that all missiles were intercepted with no casualties, as President Trump stated, “We’ll be hitting them hard… they’re going to get a beating.” Trump referred to the attacks as a “surprise,” though Iranian media said the attacks were in response to “aggressive US actions,” without providing details. In response to earlier drone attacks on Saudi oil facilities, the US and Saudi Arabia struck Iran-backed militia sites in eastern Iraq, marking a notable expansion in the conflict. The flare-up has revived risks of a broader war just as peace talks have restarted.