▲ Federal Reserve Chair Kevin Warsh
The U.S. Federal Reserve's decision to freeze its benchmark interest rate has sparked concerns that it may be falling behind the curve on inflation, causing stock and bond prices to plummet simultaneously in U.S. financial markets while international gold prices rose.
On this day, the Dow Jones Industrial Average dropped 1,153.18 points (-2.19%) from the previous session to close at 51,594.14 on Wall Street.
The S&P 500 index fell 112.63 points (-1.52%) to 7,316.15, and the tech-heavy Nasdaq index declined 433.97 points (-1.74%) to 24,442.94.
Driven by this decline, the Dow recorded its largest drop in 15 months, since April of last year when the market was heavily shaken by the Donald Trump administration's reciprocal tariff policy announcement.
The Nasdaq 100 index, composed of 100 Nasdaq-listed stocks, fell 1.8% on this day, dropping more than 11% from its June peak and entering correction territory.
The Fed held a Federal Open Market Committee (FOMC) meeting on this day and kept its benchmark interest rate unchanged at 3.50% to 3.75%.
Three members—Beth Hammack, Neel Kashkari, and Lorie Logan—voted against the decision, arguing for a 0.25 percentage point rate hike, while six majority members voted to freeze rates.
Federal Reserve Chair Kevin Warsh stated during a press conference that "there is no softened inflation target," emphasizing the Fed's commitment to achieving its 2% inflation target.
However, the bond market focused more on his rate decision action than his hawkish tone, fueling doubts about his commitment to fighting inflation.
According to the electronic trading platform Tradeweb, the yield on the 30-year U.S. Treasury bond surged 0.11 percentage points from the previous session to 5.21% immediately after the close of the New York stock market.
This is the highest level in 19 years, since July 2007 before the financial crisis.
The yield on the 10-year U.S. Treasury note, a global bond yield benchmark, also rose nearly 0.1 percentage points to touch 4.7% right after the New York market closed.
Experts evaluated that the bond market sent a warning message to Chair Warsh.
The analysis suggests that the so-called bond market "vigilantes" engaged in a sell-off of U.S. Treasuries following Chair Warsh's press conference, demanding that the Fed take more aggressive action against inflation.
Jeffrey Gundlach, CEO of DoubleLine Capital, told CNBC on this day, "If you really want to get to the 2% inflation target, I think you have to raise interest rates."
He added, "The sharp rise in long-term Treasury yields after the press conference is the bond market vigilantes saying, 'If you want us to believe your rhetoric, you now have to back it up with action.'"
The surge in international oil prices also added fuel to inflation concerns.
As the U.S. and Iran resumed armed exchanges that had been temporarily suspended since last weekend, Brent crude futures jumped 7.9% from the previous session to close at $90.74 per barrel, climbing back into the $90 range.
The closing price for U.S. West Texas Intermediate (WTI) crude futures also rose 6.6% from the previous session to $84.46 per barrel.
U.S. President Donald Trump said in a phone interview with Fox News on this day regarding Iran's surprise attack on a U.S. military base in Jordan, "We are going to hammer them," raising concerns over escalating conflict.
International gold prices rose nearly 2% following the Fed's rate freeze decision.
According to Reuters, spot gold traded up 1.9% from the previous session at $4,101.99 per ounce around 2:55 p.m. U.S. Eastern Time.
Just before the Fed's rate decision, spot gold prices had temporarily fallen below the $4,000 per ounce mark during the session due to surging international oil prices and expectations of prolonged high interest rates.
Despite the surge in bond yields, the value of the U.S. dollar plunged.
The dollar index, which reflects the value of the dollar against six major currencies, fell 0.5% from the previous session to 100.94 near the close of the New York stock market.
(Photo: AP, Yonhap News)
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