The sharpest divide on the committee since 2016
The decision was made by a vote of nine to three: Beth Hammack, Neel Kashkari, and Lori Logan preferred to raise the rate by 0.25 percentage points. All three head regional Fed banks—in Cleveland, Minneapolis, and Dallas. The FOMC hasn’t seen this many votes in favor of tightening policy since September 2016, according to CNBC.
The target range has remained unchanged for the fifth consecutive meeting—since the 25-basis-point cut in December.
Inflation in the United States has remained above the 2% target for more than five years. In their statement, Committee members attributed the rise in prices to supply shocks, including those related to energy. Economic activity there was described as “expanding at a steady pace,” despite heightened uncertainty caused by the conflict in the Middle East.
At a press conference, Fed Chair Kevin Warsh refused to call the decision a pause. According to him, the Fed conducted a “rigorous review of the economic situation.”
Warsh rejected the notion that the regulator’s actual target is higher than the announced one: there is no soft inflation target; the target is strictly 2%. Five years of high prices “cannot be cured in nine weeks or a single month of moderate deceleration,” he added.
Separately, the Fed chair noted that U.S. Treasury yields have risen significantly over the 42 days since the last meeting—part of this move ranks among the top 10% of the strongest moves over the past two decades.
The crypto market remained flat, while stocks fell
Digital assets did not react to the announcement of the decision. Over the past 24 hours, the market capitalization rose by 0.2% to $2.2 trillion. Bitcoin rose by 0.5%. At the time of writing, its price stands at $63,900.
According to CoinGecko, the price of Ethereum increased by 0.6% to $1,899. BNB, XRP, and Solana gained 0.3–0.8%.
The stock market’s reaction was contrary to expectations. After the release, the indices managed to recoup some of their losses, but sentiment shifted in the opposite direction during Warsh’s remarks.
At the end of the day, the S&P 500 fell by about 1.5%, the Nasdaq Composite by 1.7%, and the Dow Jones Industrial Average lost 2.19%. As noted by Bespoke Investment Group, for the S&P 500, this was the worst performance on the second “Fed day” under a new chair in modern history.
Analysts at Bespoke Investment Group noted that for the S&P 500, this was the worst reaction to a new Fed chair’s second meeting in modern history. The firm has been tracking these statistics since 1994, when the Fed began announcing its target interest rate.
