The Fed published its rate decision at 21:00 Israel time, and Chair Kevin Warsh's press conference began half an hour later.
Indices traded higher into the decision. And according to market reports, the direction reversed during the press conference.
Errors or inaccuracies are possible. Spotted something that looks wrong? Write to me and I will correct it.
In brief:
- The Dow fell about 1.2%, and the S&P 500 and Nasdaq gave up the day's gains.
- Warsh described the rise as "removing a dose of accommodation" - not as tightening.
- He said inflation risks are to the upside, and declined to commit on what comes next.
- The 2-year yield rose 7 basis points, and the 30-year yield did not move.
The Move, in Numbers
I do not have verified trading data for the indices themselves, so the table is based on the two largest funds that track them, against Tuesday's close:
| Daily high | Daily low | Close | |
|---|---|---|---|
| S&P 500 ETF (SPY) | +0.56% | -1.03% | -0.43% |
| Nasdaq 100 ETF (QQQ) | +1.04% | -0.64% | +0.03% |
So the S&P 500 fund moved in a range of about 1.6% between high and low, and the Nasdaq fund gave up a gain of more than 1% and finished almost where it started.
The Dow Jones fell about 630 points, roughly 1.2%, according to reports. (I did not verify the Dow's closing level against a data source, so I have omitted it.)
(The fund data shows the trading range, not the time of each high and low. The sequence - higher into the decision, lower during the press conference - comes from market reports.)
What Warsh Said
The quotes in this section are taken from the transcript the Fed published of Warsh's opening statement.
The first, and to my mind the most important:
"I would be hard-pressed to describe broad financial conditions as restrictive. This view was widely shared by the Committee. So we removed a dose of accommodation."
Note the wording. Warsh did not say "we tightened policy". He said "we removed a dose of accommodation" - so by his own description, policy was accommodative before the decision. What he did not say is that after removing one "dose", it is now restrictive.
The second:
"Inflation risks are to the upside while labor risks are roughly balanced."
When labour risks are described as balanced, nothing in that wording pulls the Committee in the other direction.
And the third:
"This summer's inflation readings do not tell me that underlying trends have meaningfully improved."
He added that "too many categories are still posting increases above 3 percent", on both a 6- and 12-month basis, and that the prices of many key inputs have risen since the previous meeting.
And what he did not say matters just as much. According to reports from the question-and-answer session, Warsh declined to "prejudge any future decisions", and said he was hard-pressed to say rates were already high enough. And in his opening statement he said explicitly that, as in June, he has not offered a rate projection of his own.
So the market received a rise, a description of it as removing accommodation, risks described as running one way - and no guidance on what comes next.
What the Yield Curve Says
According to US Treasury yield data:
| Tuesday | Wednesday | Change | |
|---|---|---|---|
| 2-year yield | 4.67% | 4.74% | +7 basis points |
| 10-year yield | 5.00% | 5.01% | +1 basis point |
| 30-year yield | 5.36% | 5.35% | -1 basis point |
The short end rose, and the long end barely moved - so the curve flattened.
And the conventional reading of such a move: the 2-year yield is sensitive mainly to near-term rate expectations, and a rise is consistent with pricing in more rate rises. The 30-year yield is more sensitive to long-term inflation and growth expectations, and it did not rise.
(These are end-of-day figures, and they do not separate what happened during the press conference from the rest of the day.)
And Why the Dow Fell More Than the Nasdaq
According to market reports from before the decision, the two indices did not start from the same place: the Nasdaq was up about 0.7%, led by chip stocks - Intel up 4.6% and AMD up 3.8% - while the Dow was already slightly lower, partly because of Chevron, which fell along with the oil price.
So part of the gap at the close already existed before Warsh began speaking. (This is a reading of market reports, not an analysis breaking down the decline stock by stock.)
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
What I take from this evening is that the line that moved the market was not the rate line.
The rise was on the table, and last week I wrote here about that possibility. What was not known in advance was how the Fed Chair would describe it - and he described it as removing accommodation, not as tightening. That is a difference of wording, and in my view it is a central part of what happened in the two hours that followed.
And what I find most interesting is the gap between stocks and long bonds. Stocks fell and the 2-year yield rose - that is consistent with a market pricing higher rates for longer. But the 30-year yield did not rise. To me that does not look like a market afraid inflation is slipping out of control, but like a market taking seriously a central bank that says it intends to fight it - and the cost of that was booked, at least this evening, in equities.
And it also explains why Warsh's approach can generate volatility. A chair who declines to give forward guidance shifts a lot of weight onto the moment he speaks - when there is no map, every phrase is read as one.
And I want to be careful not to read too much into one day. The market reversed this evening, and it can reverse again tomorrow. One trading session is not a trend.
(It is important to stress: this is my personal opinion only, and nothing herein constitutes a recommendation to take any action or a rate forecast.)
Ilan Abramov, the author, or anyone on his behalf may hold some of the securities or funds mentioned in this article.
