Stock markets in the U.S. suffered their worst one-day decline in more than a year after the U.S. Federal Reserve left interest rates unchanged despite growing inflationary pressures.
The blue-chip Dow Jones Industrial Average fell more than 1,100 points on July 29, its worst day since April 2025 when U.S. President Donald Trump announced his tariffs.
The benchmark S&P 500 index ended the day 1.5% lower and the technology-laden Nasdaq (NDAQ) index declined 1.7% on news that the U.S. central bank was holding rates steady.
The U.S. Federal Reserve voted 9-3 in favour of holding its key Fed Funds Rate steady in a range of 3.50% to 3.75%.
Three members of the Fed’s board dissented and voted to raise interest rates. However, the majority of the board, including new Chairman Kevin Warsh, elected to leave rates unchanged.
U.S. Treasurys reacted badly to the news, with the 30-year Treasury bond yield rising near levels not seen since 2007, pressuring stocks.
Going into the central bank’s decision, Wall Street appeared divided over whether the Fed should raise interest rates, with futures traders putting the probability at about 30%.
The market is currently pricing in two 25-basis point rate hikes from the Federal Reserve this year, one in September and another in December.
Analysts say that the reaction from the bond and stock markets indicates concerns about the credibility of new Fed Chair Kevin Warsh, who was appointed by Donald Trump.
The U.S. president continues to call for interest rates to be lowered in order to help stimulate America’s economy and stock market.
However, inflation in the U.S. has been above the Fed’s 2% target since early 2021 and there are signs that it is rising due largely to higher crude oil prices caused by the Iran war.
While Warsh continues to talk tough on inflation, markets appear to be doubting whether he intends to raise interest rates and risk incurring the anger of President Trump.
Trump had sharply criticized and attacked Warsh’s predecessor at the Fed, Jerome Powell.
Analysts say that Warsh might be more interest in appeasing Trump than doing what’s best for the U.S. economy.
Some analysts note that Trump is unlikely to want an interest rate hike in September, shortly before the midterm congressional elections this November, putting the Fed in a difficult place.
The central bank next decides on interest rates Sept. 16.
