The Federal Open Market Committee voted 9-3 to keep the target range unchanged. Federal Reserve Chairman Kevin Warsh addressed the dissent during the post-meeting press conference, making clear the Committee aims to reinforce its commitment to price stability, not soften its stance.
"There is no soft inflation target, there is no soft implicit target — not at least while this Committee is at the helm," Warsh told reporters. The Fed Chair added:
"There is only one target, and it is 2 percent."
Markets Price in September Rate Hike
Rate expectations shifted almost immediately after the meeting: traders on the three largest exchanges now lean toward a hike occurring in September. This reaction follows a familiar pattern. When the Fed makes a 'hawkish' hold decision rather than a 'dovish' pause, markets often spend more time reevaluating the next meeting than reacting to the current one.
The CME Fedwatch Tool now prices a 61.4% chance of a 25 basis point hike, which would raise the target range to 3.75%–4.00% on September 16; a month ago, that probability was 50.6%. Expectations for a larger 50 basis point hike have vanished entirely, down from 25% a week prior to 0.0%, while the probability of a rate cut is zero.
Prediction markets paint a similar picture. Traders on Kalshi price a 53% chance of a 25 basis point hike versus 44% for holding rates steady, with trading volume exceeding $1.36 million. On Polymarket, where trading volume surpassed $8 million, betting participants price a 52% chance of a hike compared to 46% for maintaining the current rate.
While each platform arrives at these conclusions differently, all three are reacting to the same signals: inflation hasn't cooled enough to satisfy policymakers, and Warsh's remarks leave little doubt that the Committee remains focused on restoring credibility, not preparing markets for policy easing.
Warsh Highlights Treasury Yields, AI Spending
Warsh began by highlighting two developments that stood out particularly over the 42 days since the Committee's last meeting.
The first was the shift in Treasury yields. Sharp rises in both nominal and real yields tend to tighten financial conditions even before the Fed changes rates, making it an important signal policymakers watch closely. The U.S. central bank chief described the increase as "among the most significant in the past two decades" and partly attributed it to the Fed stepping back from detailed forward guidance, telling reporters markets were "learning to play ball, not umpire."
The second factor concerned business investment. Spending related to artificial intelligence (AI) is becoming harder to separate from broader capital expenditure trends, as large-scale infrastructure projects simultaneously impact manufacturing, semiconductors, power demand, and construction. Warsh noted that investment in AI equipment and software has risen almost 20% over the past four quarters, supporting industrial output but also complicating the inflation picture as these same expenditures boost demand for costly equipment and infrastructure.
Warsh said the Committee devoted much of its meeting to discussing four practical questions: how five years of above-target inflation should influence today's monetary policy decisions; how various economic shocks affect employment and growth; whether AI-driven capital expenditures represent temporary price pressure or a broader inflation risk; and to what extent monetary policy easing is still provided by the Fed's balance sheet, separate from interest rate policy.
Stocks Recover, Bitcoin Stabilizes
On Wednesday, markets parsed the Fed statement, then shifted direction the following day. This sequence is typical following major policy announcements, especially when investors first react to headlines before reassessing the overall tone of the press conference.
Wednesday's sell-off marked the Dow Jones Industrial Average's sharpest one-day drop in roughly 15 months, with the index falling about 2.2%. The S&P 500 declined about 1.5%, and the Nasdaq Composite dropped about 1.7%. During Wednesday's session, the U.S. stock market shed $1.2 trillion in value.
By midday Thursday, buyers returned to the market. The Dow Jones recovered about 0.6%, trading near 51,900. The S&P 500 gained roughly 1% to 1.2%, and the Nasdaq rose 1.5%–2.4% on the back of better-than-expected results from Microsoft's Azure cloud segment. Meta shares lagged amid tempered forecasts, and rising long-term Treasury yields — with 30-year bonds nearing multi-year highs — continued to cap overall optimism.
Bitcoin traded in a relatively narrow range throughout the session, holding above $64,000 with a slight upward bias. Price action remained orderly despite 24-hour trading volume exceeding $20 billion, suggesting market participants preferred to await additional macroeconomic data rather than take aggressive positions immediately following the Fed meeting. Such consolidation often follows a sharp move, especially after Bitcoin pulled back from highs near $66,000 in early July.
What Comes Next
The next Fed monetary policy decision will occur on September 16, giving officials roughly seven weeks to study additional inflation, employment, and consumer spending data before voting again. Historically, when the Committee is split, incoming economic reports carry even greater weight, as they can rapidly shift internal consensus.
Concluding, Warsh emphasized the Committee is moving away from predictable policy signals and toward decisions more driven by incoming data and internal debates regarding inflation, supply-side pressures, and AI-related investment.
For investors, the gap between the Fed's official decision and market expectations will remain the dominant theme heading into September. If inflation remains stubbornly high and long-term bond yields stay elevated, a quarter-percentage-point hike will no longer be a surprise. Instead, it will be the next step in a policy course markets have already begun to price in.
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