Equities Whipsaw Lower as Warsh Delivers Hawkish Presser
US equities finished lower Wednesday after a classic Fed-day whipsaw: indexes were firmer into the 2:00pm EDT announcement, then sold off during and after Chair Kevin Warsh’s press conference. The Dow Jones Industrial Average fell 631 points (−1.21%) to 51,461.78, the S&P 500 lost 33.59 (−0.44%) to 7,552.14, and the Nasdaq Composite was essentially flat at 25,978.43 (−0.01%). Declining issues led advancers on both the NYSE and Nasdaq.
Energy was the weakest S&P sector at −3.0% as crude eased, with Chevron falling 2.9%, Exxon 3.5%, and Devon and ConocoPhillips each losing more than 5%. Financials were broadly softer — JPMorgan −1.01%, Bank of America −2.72%, Mastercard −0.96%. Tech was the best major sector as semiconductors stabilised: Intel jumped 4.0% on reports SK Hynix is in talks to manufacture memory chips on US soil with the company, marking semis’ first decisive gain since the AI-safety coordination scare.
J.B. Hunt Transport slumped 13.3% — the top S&P 500 percentage loser — after its finance chief said current-quarter earnings would fall 5%–10% sequentially on escalating diesel costs. Boeing fell 3.7% after its CEO said stabilising 737 MAX output at 47/month is taking longer than expected, with 777X testing now spilling into 2027. Robinhood dropped 5.5% as the Senate failed to advance the Digital Asset Market Clarity Act.
Fed Delivers First Hike Since 2023 — Warsh: “We Will Deliver Price Stability”
The FOMC voted unanimously (12–0) to raise the federal funds rate by 25 basis points to a target range of 3.75%–4.00% — the first tightening since July 2023 and the first policy shift under Chair Warsh, who took office in late May after being selected by President Trump with the expectation he would cut rates. The updated Summary of Economic Projections showed 16 of 18 policymakers anticipating at least one more quarter-point increase this year, with four pencilling in two more. Warsh again did not submit a dot-plot projection, and only 18 of 19 possible dots appeared on the chart.
Warsh’s presser was the market’s pivot point. “The plain fact is that inflation is too high and has been for too long,” he told reporters. He characterised the hike as “removing a dose of accommodation so that financial and credit conditions would be more consistent with our ultimate objectives,” and said the American economy “appears to be strengthening” while broader financial conditions are not restrictive enough. He refused to provide forward guidance, declaring: “I am not in the forward guidance business. Today was our decision.” The SEP projects PCE inflation at 3.7% (core 3.4%), unemployment at 4.1%, and growth at 2.3%, with inflation not returning to 2% until 2029.
The shift from July’s 9–3 hold (where three regional presidents dissented in favour of a hike) to a unanimous 12–0 vote was the real story, according to David Krakauer at Mercer Advisors: “That kind of consensus doesn’t happen without conviction. This isn’t a divided Fed feeling its way through uncertainty. It’s a unified committee sending a clear, collective message.” CME FedWatch odds of another hike at the late-October meeting rose to 50.9% from 43.5% the prior day, with end-2026 odds of at least one further 25 bp increase reaching 88.5%.
Krishna Guha at Evercore ISI warned that Warsh’s framing of the hike as “removing a dose of accommodation” disturbed the bond market and left the tightening path open-ended, especially given Warsh’s financial-conditions lens rather than a clear neutral-rate anchor. “That comment risks unmooring our sense of how far the Fed chair thinks rates might need to go,” Guha wrote.
Kay Haigh, global head of fixed income at Goldman Sachs Asset Management, said the Fed has signalled it does not envisage an aggressive tightening cycle — most FOMC members see two total hikes this year per the SEP, and the committee will likely skip October given its proximity to midterm elections. “One more hike this year in December is our base case, although this remains contingent on upcoming CPI reports and the path of energy prices.”
Oil Retreats on Saudi Workaround, but Hormuz Squeeze Persists
Brent crude fell $2.92 (−2.7%) to settle at $105.83/bbl and WTI dropped $3.40 (−3.2%) to $102.43 after reports Saudi Arabia was offering additional crude loadings to Asian refiners via ship-to-ship transfers off Oman’s Sohar port — blunting some of the supply-scare premium from the East-West pipeline disruption that had driven Tuesday’s ~$3 jump. A smaller-than-expected EIA crude draw (~640k bbl vs ~1.62m expected) added further pressure, while gasoline and distillate stocks rose. Bloomberg also reported Saudi Arabia is seeking to restart the pipeline at half capacity within days.
The pullback is relief on Saudi workaround cargoes, not a clean geopolitical de-risk. Visible Hormuz commodity vessel passage remained in the single digits (four Tuesday vs seven the prior day; 10-day average 18), well below normal. Diesel remains the acute product squeeze — the US average hit a fresh record of ~$6.31/gallon and European gasoil futures are at record highs. Russian diesel export restrictions have been extended into end-October. Crude is still up more than 20% over roughly two-and-a-half weeks, with both grades remaining above $100.
The yield curve flattened dramatically post-Fed: the 2-year yield rose ~7 bp to 4.738%, while the 10-year held near 5.00%–5.016%. The 2s/30s spread narrowed to about 61 bp — the flattest since March 2025. The dollar index rose 0.63% to 100.31, marking a sixth consecutive gain and the highest level since late July. AUDUSD fell to 0.7084 (−0.58%) on the AFR markets-data board at ~7:44am AEST Thursday. Gold sold off on the stronger dollar — Reuters spot $4,263.19 (−0.69%).
Bond Market Leads the Fed — Warsh Pins Yields on AI Capex and Geopolitics
Treasuries have been in a relentless selloff roughly since the Fed’s July meeting, with the 10-year yield hitting its highest level since April 2007 on Tuesday before the Wednesday hike. The bond rout initially began when three regional Fed presidents dissented in favour of a hike at the July meeting, and then accelerated in August on spiking oil prices, surging AI/hyperscaler capex competing for capital, and ballooning US fiscal debt. Warsh told reporters that rising long yields reflect economic strength and unsettled geopolitics — “not simply spot prices of energy” but crack spreads feeding into consumer prices — and pointedly did not cite a loss of confidence in the Fed’s inflation fight.
Treasury Secretary Scott Bessent’s activist campaign to tamp down long-end yields — including last week’s expanded debt buybacks — continues to founder after the 10-year’s breach of 5% earlier in the week. July TIC data showed foreign Treasury holdings fell $50.4 billion to $9.25 trillion (the lowest since October), with Japan reducing holdings by $12.8 billion to $1.1 trillion. Analysts see little prospect of Fed QE or yield-curve control at Treasury’s behest; Warsh is viewed as protecting Fed credibility and wanting a smaller balance sheet (~$6.7 trillion).
August retail sales were notably strong — up 1.2%, the largest increase since March — with core retail sales surging 1.4%, the biggest gain since September 2024. Goldman Sachs raised its Q3 GDP estimate by 0.5 pp to 3.0% annualised, and JPMorgan boosted theirs to 3.5%. Import prices rose 0.7% in August, soaring 7.0% year-on-year (the largest increase since August 2022), underscoring that inflation pressures are broadening.
A US$22 billion (A$31 billion) bank syndicate loan is being arranged for Blackstone and Alphabet’s Crux AI cloud venture to fund purchases of Google TPU chips, secured against chip values and customer contracts. Arrangers include Goldman Sachs, SMBC, Barclays, BNP Paribas and Scotiabank, with further syndication underway. The debt may later refinance into institutional investment-grade bonds — a fresh data point on the scale of AI-capex financing and hyperscaler capital demand that Warsh cited as driving long-end yields higher.
ASX Faces Rates-Heavy Open — Energy Soft, Miners Fragile
The S&P/ASX 200 closed Wednesday at 8,696.50 (+0.28%), snapping a five-session losing streak as an oil-fuelled energy bid and a gold-miner rally offset rate-sensitive financials and REITs. Energy outperformed from the open on elevated Brent, while gold names dominated the leaderboard — St Barbara +8.8%, Pantoro Gold +9.5%, Vysarn +10.3%. The index remains ~2.5% lower on the week and ~4.6% over the month. In corporate news, Reliance Worldwide (RWC) agreed to a ~A$4.1 billion buyout from Brookfield.
SPI futures point to −65 points / −0.75% at 8,625 on the AFR markets-data board last updated ~6:44am AEST Thursday. Expect energy and miners to split: oil’s overnight −3% weighs on Woodside, Santos and Beach, while iron ore at $96.69/t keeps materials fragile rather than offering a clean risk-on bounce. Gold miners may hold up given safe-haven flows, though spot gold’s −0.69% move on the stronger dollar tempers that. Banks remain yield-path sensitive after the US 2-year jump and flatter curve.
Macquarie views an RBA hike at the 28–29 September meeting as almost certain, with money markets pricing ~77% odds of a fourth 2026 increase that would lift the cash rate from 4.35% to 4.60%. The overnight hawkish Fed repricing adds to the domestic case for further tightening.
Fundstrat’s Mark Newton flagged that near-term weakness could complete a short-term pattern and create a more attractive buying opportunity. Dips remain buyable for multi-day horizons, though the path lower into the Fed decision may test that conviction. Yardeni Research separately slashed its S&P 500 target to 7,900.
The ASX opens into a rates-heavy, USD-strong backdrop after the Fed’s first hike in three years and Warsh’s hawkish presser. SPI futures at 8,625 (−0.75%) set the tone, with AUDUSD at 0.7084 and iron ore flat at $96.69/t. Energy names face the overnight crude pull-back while gold miners weigh a softer spot price against safe-haven demand. No domestic data prints are scheduled today.
- ASX Open (~10:00am AEST) — SPI futures imply 8,625, down 65 points from Wednesday’s 8,696.50 cash close. Watch energy vs gold-miner divergence.
- RBA Governor Bullock speaks (Fri 18 Sep, 09:30 AEST) — First scheduled appearance since the Fed hike; markets will parse for any shift in tone ahead of the 28–29 Sep decision (~77% priced for a hike to 4.60%).
- Bank of England decision (tonight, ~11:00pm AEST) — Hold expected, but UK CPI hit 3.1% y/y in August (highest since March); swap traders see a one-in-three chance of a hike. Secondary for the ASX open but sets global rate tone.
- US Philly Fed Manufacturing Index (10:30pm AEST) — Forecast 31.3 vs prior 47.4. A weaker print could temper some hawkish enthusiasm; a strong number reinforces the higher-for-longer narrative.
- US Weekly Jobless Claims (10:30pm AEST) — Forecast 207K vs prior 206K. Labour market resilience is key to the Fed’s confidence in further tightening.
- US 10-Year TIPS Auction (overnight) — Real yield demand signal after the 10-year breached 5%; watch for any dislocation colour.