The Fed said less, and the bond market took over

Good morning. The Fed held rates at 3.50% to 3.75% last night, but three officials wanted to raise them instead. Chair Kevin Warsh also said he is dropping forward guidance, the habit of hinting at where rates are headed, and markets suddenly felt like they were navigating without a compass.

Investors saw tough talk paired with soft action, and that doubt spilled into long-term rates. The 30-year Treasury yield climbed to 5.2%, and mortgage rates hit a one-year high. Second-quarter growth came in at just 1.5% annualized, below forecasts, while core PCE inflation sits at 3.3%, well above target. Slowing growth with stubborn prices is an uncomfortable mix.

Stocks still bounced. Microsoft jumped 16% on cloud strength and a growing base of paying AI subscribers, pulling tech up with it. Meta fell 8% after lifting its spending plans and reporting weaker free cash flow. Everyone is pouring money into AI, but investors are starting to sort winners from losers by whether that money is coming back as profit.

In energy, Russia's Ryazan refinery stopped processing after a drone strike and could be down for up to two weeks. With diesel already tight worldwide, that adds fresh worry about fuel prices feeding into inflation.