Fed Holds Steady Amid Inflation Concerns as 30-Year Treasury Yield Hits Highest Since 2007

The U.S. Federal Reserve decided on Wednesday (June 29) to hold rates steady, but three officials voted in favor of a 25-basis-point rate hike, raising concerns about whether the Fed can still effectively control inflation. Yields on long-term U.S. government bonds rose sharply, with the 30-year Treasury yield hitting its highest level since July 2007.

The 30-year Treasury yield jumped 11.9 basis points to 5.215%, briefly touching 5.244% during the session—the highest since July 2007. The benchmark 10-year Treasury yield also rose 8.8 basis points to 4.691%.

Short-term yields, however, declined. The 2-year Treasury yield fell 4 basis points to 4.269%. One basis point equals 0.01%, and yields move inversely to bond prices.

The Federal Open Market Committee (FOMC) decided to maintain the federal funds rate target range at 3.50–3.75%. This marks the first time since 2016 that the Fed has seen three dissenting votes in the same direction during a single meeting. The dissenting members were Federal Reserve Bank presidents Lorie Logan, Beth Hammack, and Neel Kashkari.

Ellen Zentner, Chief Economic Strategist at Morgan Stanley Wealth Management, said: 'Chairman Kevin Warsh once described inflation as a choice, but today the Fed chose to wait amid conflicting data. Warsh called for a family feud, and he certainly got one,' she said.

She added: 'For now, the market pricing for rate hikes may simply be delayed. September remains a potential meeting for action, and the inflation data released before then will be the sole key.'

The Fed under Chairman Warsh faces persistent inflation above its 2% long-term target since 2021. However, the Consumer Price Index (CPI), a key inflation gauge, unexpectedly declined, causing June’s year-over-year inflation rate to drop to 3.5%.

But in the following weeks, escalating Middle East tensions drove oil prices higher again.

Ian Lyngen, Head of U.S. Rates at BMO, said in a report: 'We interpret this meeting as showing hawkish voices actively speaking up within the FOMC, but the majority of officials still support Chairman Warsh’s stance to keep rates stable at least until September, by which time policymakers will have access to July and August CPI data.'

At the post-meeting press conference, Warsh emphasized that the FOMC would act swiftly if inflation pressures rise. 'I want to emphasize, of course, that the committee’s decisions are very important, and we will not hesitate to act when necessary and appropriate,' he said.

Meanwhile, Middle East tensions have escalated again. On Wednesday, President Donald Trump told Fox News reporters that the U.S. would respond 'strongly' to Iran’s surprise attack, sending energy prices soaring. West Texas Intermediate (WTI) crude futures rose 6.56%, closing at $84.46 per barrel.

The U.S. Central Command said late Tuesday that Iran launched ballistic missiles at U.S. forces in the Middle East. The attacks originated from Iran, but all missiles were intercepted.