Morning Bid: A timely hike

• Fed funds futures indicated roughly 50% probability of another rate hike at the October meeting, just before midterm elections
• President Trump called for lower rates but notably avoided criticizing Chair Warsh, unlike his treatment of predecessor Jerome Powell
• Bank of England expected to hold rates steady at 3.75% Thursday, though markets priced 80% chance of a November hike amid elevated energy prices

Federal Reserve Delivers Quarter-Point Rate Hike with Hawkish Signals

Key Policy Decision:

The Federal Reserve raised its benchmark interest rate by 25 basis points to a range of 3.75%-4.00%, marking its first hike in three years. The move, while expected by markets, came with more hawkish messaging than anticipated under Fed Chair Kevin Warsh.

Forward Guidance:

The Fed's "dot plot" projections showed 16 of 18 policymakers anticipating at least one more quarter-point hike by end of 2026. Fed funds futures indicated a 50% probability of another rate increase at the October meeting, timing that would precede midterm elections. The policy statement emphasized the move would "support a timelier return" to the 2% inflation target.

Market Reaction:

Stocks rallied in early trading Thursday following Wednesday losses. The 10-year Treasury yield eased below 5% after initially rising post-announcement, while the 30-year yield remained near a 19-year high. Short-dated yields rose while longer-dated yields declined slightly, suggesting investor confidence in the Fed's inflation-fighting credibility.

Political Context:

President Trump criticized the hike and called for lower rates, though notably avoided attacking Warsh personally—a departure from his treatment of former Chair Jerome Powell.

Other Developments:

• Bank of England expected to hold rates steady at 3.75%, with markets pricing 80% chance of November hike
• Bank of Japan anticipated to raise rates Friday
• Oil prices stabilized after 3% declines, with Saudi Arabia offering additional crude cargoes
• Middle East tensions continued with Saudi-Yemen conflict escalation
• U.S. House passed Russia sanctions bill over Ukraine invasion

Upcoming Data: Weekly jobless claims, August housing starts, and Philadelphia Fed business index due Thursday.