Nordea’s Kirsti Sunde Midttun notes that the Federal Reserve (Fed) kept its target range at 3.50–3.75%, but three hawkish dissents make the hold less comfortable than in June. With no new projections, the unchanged statement and a cautious press conference offered limited guidance. Market moves in United States (US) government bonds and a weaker US Dollar (USD) suggest some scepticism about inflation control, and Midttun still expects a September hike.

Hawkish dissents keep tightening risk alive

"Going into the meeting, markets put the odds of a hike at around one in three. In the event, the Fed held the target range at 3.50–3.75%. But the vote was 9–3, with Beth Hammack, Lorie Logan and Neel Kashkari all preferring a 25bp hike at this meeting."

"On inflation, the Committee repeats that price growth "remains elevated relative to the Committee's 2 percent goal," and closes again with "The Committee will deliver price stability.""

"Warsh was clear enough on the balance of the mandate — the Fed is doing well on employment, "but we're doing considerably less well on prices" — which sits comfortably with three dissents."

"But if the Fed is expected to do less now, and the long end is moving the other way, the implication is that investors are less confident inflation will be brought under control. It is too early to conclude that markets do not trust Fed to deliver."

"Three dissents, all in the same direction, tell us where this Committee is heading. We continue to look for a hike in September."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)