Fed Pauses Rate Hikes Amid Internal Splits

The U.S. Federal Reserve maintained its policy rate on Wednesday, April 29, at 3.5%-3.75%, a decision that revealed the most significant internal division since 1992. Eight officials voted to hold rates, while four dissented; three favored a tighter stance, and one advocated for a rate cut. This outcome occurred during what is anticipated to be Federal Reserve Chair Jerome Powell's final meeting.

The divided vote reflects rising concerns about inflation, particularly influenced by oil prices exceeding $100 a barrel due to the ongoing Iran conflict. Market traders responded by increasing the perceived likelihood of a rate hike within the next year to 25%, while expectations for rate cuts in 2026 diminished. This macroeconomic environment is expected to present challenges for Kevin Warsh, who is slated to succeed Powell as chair next month.

Following the announcement, major U.S. stock indices declined, with the S&P 500 down 0.4%, the Dow Industrials down 0.8%, and the Nasdaq Composite off 0.4%. U.S. Treasury yields rose, with the 10-year note yield increasing by 6 basis points to 4.41% and the 2-year note yield climbing 8 basis points to 3.92%, indicating reduced expectations for near-term rate reductions. The dollar index also strengthened, rising 0.4% to 98.95.