Topline
The Dow Jones Industrial Average tumbled to its worst day of the year Wednesday, falling over 2% after the Federal Reserve left interest rates unchanged as central bank officials have appeared conflicted on how to handle mounting inflation concerns.
Key Facts
The Dow closed down 2.2%, falling 1,153 points to its lowest point in over four weeks.
Despite the drop, the Dow is up 5.1% in the last six months of trading and has completely recovered from its slump in March that was informed by the war in Iran and rising oil prices.
The Federal Open Market Committee on Wednesday held interest rates between 3.5% and 3.75% in a 9-3 vote, conflicting with a unanimous vote last month to maintain interest rates, with the three dissenting votes supporting a 0.25% rate hike.
The committee’s statement provided a rosy picture of the economy, saying economic activity was “expanding at a solid pace” despite the Iran war.
Tangent
The S&P 500 and Nasdaq also slid Wednesday, falling 1.5% and 1.7%, respectively. Both indexes are up at least 5% since January.
Big Number
7.3%. That is how much the Dow has risen since the start of the year. Despite lows near the 45,100 mark in March, the index has jumped to and generally remained about 51,000 points since mid-June.
Key Background
President Donald Trump nominated Warsh early this year after repeatedly attacking the Fed’s former chairman, Jerome Powell, for the Fed’s track record of maintaining or raising interest rates amid an effort to curb pandemic-induced inflation. The Federal Reserve cut interest rates multiple times last year, bringing them down to between the 3.5%–3.75% range by the end of the year. Warsh has not made clear indications about how he plans to address near-term interest rates, while Dallas Fed president Lorie Logan and other members have pushed for “modestly” higher rates alongside a more strict monetary policy. The Federal Reserve is not expected to lower rates this year, as officials said during the committee’s June meeting a cut could materialize by the second quarter of 2027. Bank of America analysts expect interest rates to be hiked repeatedly before the year is over, potentially reaching the range between 4.25% and 4.5%.
Further Reading
Fed Keeps Interest Rates Unchanged As Dissent Mounts (Forbes)
Kevin Warsh Could Become Richest Fed Chair Ever—Discloses Assets Worth Over $100 Million (Forbes)