The Federal Reserve Bank made their rate announcement on Wednesday of this week. The group was divided, with the majority voting to leave rates unchanged (3.5-3.75%) but with three members dissenting and voting to hike rates. Fed Chairman Warsh noted the group had a healthy debate but in the end, they voted to hold rates constant.

Inflation remained the top concern, with the majority of the group believing that prices would stabilize without a rate increase. However, the risk remains that growing inflationary pressures – from tariffs and AI buildout – may not abate anytime soon and may put increasing pressure on the Fed to not just pause – but hike – in the near term. Further concerns surrounding inflation are being driven by the ongoing conflict in the Middle East and its impact on energy prices, as peace talks seem to be “on again, off again.”

Markets initially reacted rather well to the announcement but then took a sharp turn lower, posting their worst declines since April 2025. The about-face seems to be markets reading further into the dissents and worrying that inflation might yet again be getting away from the Fed (as it did post COVID era). Long bond yield also rose late in the trading day, indicating that bond markets expect rate hikes in the future. Rising rates put negative pressure on bond and equity prices alike.

During his Press Conference, Fed Chairman Warsh argued that rates were already moving higher as the result of increases in the 10 year interest rate and that there was no need to put further pressure on the economy by raising the short-term Fed Funds rate.

The Fed is exercising patience – rather than reacting to near-term inflationary pressures. Their next meeting will be in September, giving them two more months of data to assess and react to. However, markets are clearly concerned that inflation may spike before then and become a problem that cannot be easily reversed. This leaves a question mark surrounding how long their patience will last.

These large swings in markets can be hard to stomach as an investor. Add in concerns over quarterly earnings, activity from quarterly rebalancing, ongoing volatility in oil prices, and a whole host of other factors, and it’s no wonder that market swings are increasing. I know it’s challenging, but try to keep in mind that you’ve experienced such moves in the past. This too shall pass – but for now, stick to your planned approach and do your best to tune out the noise.

Onward we go,