Fed doesn’t blink and raises interest rates
Susannah Streeter, chief investment strategist, Wealth Club: “In the showdown between the Fed and the White House, Fed chair Kevin Warsh didn’t blink. Despite repeated calls by president Trump to cut, or at least hold, rates, the Federal Open Market Committee voted to raise the Fed funds rate by 0.25 percentage points. With consumer prices already heading higher and the energy crunch set to intensify, this is the first attempt to put the inflation genie back in the bottle.
Kevin Warsh was stuck between a rock and a hard place. The choice was either to lead with the hike in rates and risk the potential wrath of the President or risk a fresh strop in the bond markets. The decision was a test of the Fed’s independence, and this move has strengthened the autonomy of the institution.
The decision to hold rates at the previous meeting saw Treasury yields creep up as investors began to doubt the ability of the Fed to bring inflation under control, with worries that a weak stance would only prompt the need for steeper hikes in the future. This time around, Treasury yields have slipped lower, which will be seen as a vote of confidence in Warsh’s stewardship.
Nevertheless, with the war in Iran still entrenched and the AI infrastructure build-out adding to inflationary pressure, the inflation battle is far from over and markets are still bracing for further rate hikes.”