US government borrowing costs have reached their highest point since 2007, following the Federal Reserve's decision to keep its key interest rate unchanged. This move has raised concerns that the central bank may not be acting quickly enough to control rising inflation.
The yield on the 30-year US Treasury bond increased by 14 basis points, reaching nearly 5.24%. This marks a 19-year high and occurred after the Fed announced it would hold its main rate at between 3.5% and 3.75% for the fifth consecutive meeting.
Fed Chair Kevin Warsh affirmed the bank's commitment to tackling rising prices, stating it would "not waver" from its 2% inflation target. He dismissed any notion of an "implicit target" above 2%.
The decision to maintain rates reportedly unsettled investors, who are concerned about the US economy's capacity to manage inflation, which was influenced by the conflict in Iran. US inflation had cooled to 3.5% annually in June during a ceasefire, but has since seen oil prices climb again as hostilities resumed.
Felix Schmidt, a senior economist at Berenberg, noted that Warsh suggested a near-term rate hike might not be necessary due to the existing rise in bond yields, which has already increased borrowing costs across the US economy. Financial markets had previously priced in a 30% chance of a rate rise before the meeting, with expectations for a September increase now at about 57%.
US stocks also saw sharp declines, with the S&P 500 index closing down 1.5%, the Dow Jones industrial average falling 2.2%, and the Nasdaq dropping 1.7%.