Morning Bid: Bond markets doing the Fed's work

The U.S. Federal Reserve decided to keep interest rates steady, amidst growing divisions among policymakers, with three dissenting votes highlighting differing views on addressing inflation. Chairman Kevin Warsh acknowledged rising bond yields but offered no clear strategy on rates, raising concerns about the Fed's credibility. Meanwhile, the bond market reacted with the yield on 30-year U.S. bonds reaching 19-year highs. In global markets, worries around artificial intelligence and corporate earnings, particularly from companies like Meta, contributed to fragile sentiment. The Bank of England is expected to maintain its rates as it evaluates ongoing inflation pressures influenced by geopolitical events. Key economic data to watch includes GDP and inflation figures from the Eurozone and the latest Bank of England policy decision.

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U.S. Federal Reserve Chairman Kevin Warsh holds a press conference, in Washington

U.S. Federal Reserve Chairman Kevin Warsh holds a press conference following a two-day meeting of the Federal Open Market Committee (FOMC), as the Federal Reserve holds interest rates steady, at the Federal Reserve, in Washington, D.C., U.S. July 29, 2026. REUTERS/Evelyn Hockstein Purchase Licensing Rights, opens new tab

A look at the day ahead in European and global markets from Ankur Banerjee

A divided Federal Reserve and a confusing message from Chair Kevin Warsh on where rates are headed has left the bond market scratching its head and somehow in ‌charge, in an odd reversal that raises questions about the central bank's credibility.

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The U.S. central bank stood pat, as expected, but three dissenters underscored the growing divide among policymakers on the next steps in combating inflation that remains above the Fed's target of 2%.

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Warsh vowed to contain inflation but gave no indication of the steps the ⁠central bank might take, noting that bond yields had risen notably since the Fed's last policy meeting, reflecting market expectations of higher interest rates.

He welcomed the rise in short-term bond yields, while stressing that it did not oblige the Fed to validate those expectations with policy action.

All that talk with no action is not a good look for a central bank that is aiming to convince that its independence is not under threat.

"Talking hawkish but not acting so reduces the Fed's credibility," said Wall Street veteran Ed Yardeni. "We conclude that the Fed ‌has ⁠to raise short-term rates to lower long-term rates."

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Bond investors on Thursday shifted the prevailing dynamic as the Treasury curve steepened. The yield on the inflation-sensitive 30-year U.S. bonds rose to 19-year highs.

Meanwhile, fears around the AI trade kept sentiment fragile, although the selloff on Thursday was not as steep as ⁠earlier this week. Earnings from Samsung and Microsoft helped soothe nerves but a huge drop in Meta's cash flows underscored the challenge facing these firms to deliver returns on massive spending.

A policy decision from ⁠the Bank of England is due later in European hours with the central bank likely to keep interest rates steady as it weighs the impact of the Iran war that has closed the ⁠Strait of Hormuz for the past five months and intensified inflation pressures.

Oil prices and Bank of England forecasts

Brent crude futures show markets expect oil prices in line with the lowest of 3 scenarios the BoE published in April

Line chart showing the latest Brent crude futures curve and how it compares to the three scenarios the Bank of England published in April 2026

February

projections

Scenario

Latest

futures curve

405060708090100110$120

Chart explorer. Use arrow keys ↑ ↓ ← → to navigate.

Note: Brent futures curve from 24/07/2026

Source: LSEG, Bank of EnglandDavid Milliken

What will the Federal Reserve do with interest rates?

Odds of a change in the federal funds rate on July 29, based on futures contracts

A line chart with the title 'What will the Federal Reserve do with interest rates?'

0255075100%

Hike 0.25

33.7%

Hold

66.3%

Chart explorer. Use arrow keys ↑ ↓ ← → to navigate.

Key developments that could influence markets on Thursday:

Economic events: Bank of England policy decision, Q2 GDP and July sentiment data for euro zone, July inflation for Germany

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By Ankur Banerjee in Singapore

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Morning Bid: Bond markets doing the Fed's work

Oil prices and Bank of England forecasts

What will the Federal Reserve do with interest rates?

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