Fed keeps rates steady after divided meeting

The Fed has run out of room to cut, and Wednesday made that official. The US Federal Reserve held its benchmark rate at 3.5% to 3.75% for the fifth consecutive meeting, voting nine to three, with three regional Fed presidents dissenting in favor of a 25 bps hike.

It was one of the closest calls in years. The rate has sat at its lowest level since November 2022 for five straight meetings.

The year opened with markets pricing at least one cut in 2026. They are now pricing a hike, possibly as soon as September. What flipped the bias is inflation, which the Fed ties, in part, to “the conflict in the Middle East,” compounded by a rebound in oil.

The bind? The pressure is energy- and supply-driven, and higher rates do little to touch it, which leaves the committee holding a restrictive stance against inflation its own tools cannot reach.

The dissent came from Cleveland’s Beth Hammack, Minneapolis’ Neel Kashkari, and Dallas’ Lorie Logan, all of whom wanted to tighten as inflation has run above the 2% target for more than five years. New Chair Kevin Warsh, in his second meeting since succeeding Jerome Powell in May, called the split “a good family fight,” and has been dismantling the Fed’s forward guidance, telling markets to read developments directly rather than wait for the committee to signal its next move. President Trump renewed his push for lower rates.

The plumbing is already tightening without the Fed lifting a finger. The 30-year Treasury yield climbed more than 9 basis points to 5.193% after the decision. Morgan Stanley reads it the other way: it expects a hold through 2026 and two cuts in 2027, arguing markets have already tightened conditions by the equivalent of four 25 bps hikes since the Iran conflict began.

What’s next: The 15-16 September meeting will come following updated economic projections and two rounds of inflation and jobs data before then. June’s dot plot already split the committee: nine officials saw at least one hike by year-end, eight saw no change, one saw a cut. Warsh declined to submit a projection of his own.

MARKETS THIS MORNING-

Asia-Pacific markets opened higher in early trading following the Fed’s rate decision. South Korea’s Kospi is leading gains, with Japan’s Nikkei, the Shanghai Composite, and the Hang Seng all trailing behind. But it isn’t just the Fed’s decision that pushed the Kospi higher — “the Korean stock market underwent a strong deleveraging phase since mid-June. Now, it has entered a phase of attractive and low valuations and momentum,” JP Morgan says.

THE CLOSING BELL: TADAWUL-

The TASI fell 1.3% yesterday on turnover of SAR 5.3 bn. The index is up 0.5% YTD.

In the green: Takween Advanced Industries (+10.0%), Tabuk Agricultural Development (+10.0%), and Americana Restaurants (+7.7%).

In the red: Gas Arabian Services (-8.5%), Riyad Bank (-5.4%), and Specialized Medical (-5.3%).

THE CLOSING BELL: NOMU-

The NomuC fell 0.5% yesterday on turnover of SAR 13.7 mn. The index is down 6.6% YTD.

In the green: Molan Steel (+9.9%), Smile Care (+8.1%), and Neft Alsharq (+7.5%).

In the red: Knowledge Tower (-9.2%), Taqat Mineral Trading (-8.7%), and Keir International (-8.3%).