The Fed held, but the Dow still fell over 1,000 points

Good morning. The Fed left its benchmark rate at 3.50% to 3.75% yesterday, yet markets did not feel reassured. Nine officials voted to hold, but three regional Fed presidents dissented in favor of a quarter-point hike. New Chair Warsh made clear he wants to bring inflation down but gave no guidance on how, and the market took that silence badly.

Bonds reacted first. The 30-year Treasury yield touched its highest level since 2007 during the press conference. That means government borrowing costs are the highest in about 20 years, a sign that investors doubt the Fed's grip on prices. Traders are now seriously pricing a September hike.

Stocks took a hard fall. The Dow dropped more than 1,000 points, its worst FOMC-day performance since December 2024, and the Nasdaq slipped into correction territory. Usually bonds cushion a stock selloff, but both were sold this time, so that cushion vanished. Retail investors were net sellers at the fastest pace since the Covid crash.

Iran made things worse. After Tehran attacked US forces in Jordan and President Trump vowed a forceful response, oil jumped 7% and inflation worries came back to life. SK Hynix fell 10% even though its net profit rose sixfold, a sign that good earnings no longer move stocks the way they used to.