Markets Dive After the Fed Holds Steady

SPEAKER_1 (0:00)

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Danny Lewis (0:34)

Federal Reserve officials voted to keep interest rates steady as pressure builds to take stronger action to curb inflation. Plus, Dr. Anthony Fauci took the fifth more than a hundred times during a three-hour Senate hearing on the COVID-19 pandemic.

And could the most radical plane design since the Concorde be the future of commercial air travel?

Benjamin Katz (0:53)

We've used the same tube and wing design for over 70 years. Does a plane like this even fit into the infrastructure that we have at airports around the world?

Danny Lewis (1:03)

It's Wednesday, July 29th. I'm Danny Lewis for The Wall Street Journal, filling in for Alex Osela. This is the PM edition of What's News, the top headlines and business stories that move the world today.

We start today's show with a consequential meeting of the Federal Reserve. The Fed has held interest rates steady at least for now.

Three Fed officials voted for a rate increase during today's meeting underscoring how pressure is building within the central bank to act on inflation that has run above its target for five years. Here now to explain what happened is WSJ economics reporter Matt Grossman. Matt, three Fed presidents, Beth Hammack of Cleveland, Neil Kashkari of Minneapolis and Laurie Logan of Dallas, voted for a quarter point rate hike. Why did they vote that direction and what's the significance?

Matt Grossman (1:50)

Inflation has been a growing problem over the past few months. So those three presidents are some of the officials on the Fed's committee who have been especially focused on getting that number down again, saying it's really time for us to act and show that we're on the ball.

Danny Lewis (2:10)

Kevin Warsh was sworn in as Fed chairman in May. He's been talking a tough game on inflation, but also has said he doesn't want to reveal too much about the Fed's thinking.

Anything markets are grabbing on to in his remarks today or how he delivered them?

Matt Grossman (2:23)

Yeah, that was the tension in Warsh's press conference today.

He's been adamant that the Fed needs to get inflation back under control, but he was not one of the officials who supported a rate hike. Warsh pointed to the fact that interest rates have been rising on their own, not the rate that the Fed sets, but longer-term rates that are set in financial markets. And Warsh was kind of hinting that as long as that process is happening, markets are kind of doing some of the Fed's work for it.

Kevin Warsh (2:52)

Financial market prices in this intermeeting period, they didn't pause, they reacted to the inflation data in one direction, strong economic growth in the other direction, and nominal and real rates went up.

Did the Fed take an explicit change in its policy rate today? No, but I think that's the beginning of the story, not the end of the story.

Danny Lewis (3:16)

So Matt, what are officials going to be looking for leading up to this next meeting in September?

Matt Grossman (3:21)

We're going to get a significant amount of economic data before the September meeting. We have inflation figures for July and August, and we also have the job reports for July and August. And as Warsh said in his press conference today, this is a Fed that is not offering as much guidance, partially with the intention of letting markets do their own thing and hopefully provide a signal. So if markets are strongly hinting to the Fed that traders think rates need to rise, that could be really influential too once the September meeting comes around.

Danny Lewis (3:56)

That's WSJ reporter Matt Grossman. Thanks, Matt.

Matt Grossman (3:59)

Thank you.

Danny Lewis (4:00)

While investors were initially cheered by WSJ's remarks, the rally faded as concerns grew about whether the Fed is doing enough on inflation. Stocks fell sharply and the Dow sank more than 1,100 points or more than 2 percent. The S&P fell 1.5 percent while the NASDAQ tumbled 1.7 percent, and the 10-year treasury yield rose to about 4.67 percent, a sign of concern about rising prices.

Dr. Anthony Fauci repeatedly invoked the Fifth Amendment during a Senate hearing this morning about his handling of the COVID-19 pandemic.