Major central banks on both sides of the Atlantic held interest rates steady this week but deep divisions within their policy committees reignited fears of further tightening, triggering a sharp repricing in bond and equity markets while cryptocurrencies staged a surprising rally.
The Federal Reserve voted 9-3 to keep the federal funds rate at 3.50%–3.75%, a fifth consecutive pause, but the three dissenting votes – all from regional presidents pushing for an immediate quarter-point hike – marked the most hawkish split since 2016. Cleveland’s Beth Hammack, Minneapolis’s Neel Kashkari, and Dallas’s Lorie Logan argued that inflation had run above the 2% target for over five years and required action now. The statement offered no forward guidance, leaving the committee’s message entirely to the vote count.
The bond market reacted swiftly: the 30-year Treasury yield rose to its highest since 2007, touching around 5.21%, signalling that investors now expect rates to stay elevated well beyond this meeting. Equities tumbled, with the Dow falling 2.19%, the S&P 500 losing 1.52%, and the Nasdaq dropping 1.74% as rate-sensitive names sold off. By Thursday, CME FedWatch priced a 63.4% chance of a hike by the September meeting.
Meanwhile, the Bank of England also held its Bank Rate at 3.75% but faced a 6-3 vote, with three members supporting a quarter-point increase to 4%. Governor Andrew Bailey cited easing domestic inflation but warned that the Iran conflict and volatile energy prices had created fresh upside risks. CPI inflation slowed to 2.6% in June, but policymakers expect it to rise again later this year as higher energy costs feed through.
Despite the hawkish backdrop, cryptocurrencies bucked the risk-off trend. Bitcoin rose 1.59% to around $64,912, Ether and the broader market also posted gains, and total crypto market cap climbed 1.29% to $2.19 trillion. The divergence from equities – on a day when long-dated yields hit a 19-year high – was notable, though analysts caution that a sustained higher-for-longer path has historically pressured crypto alongside other risk assets. The durability of this decoupling will likely hinge on upcoming CPI reports and whether the hawkish minority gains further support inside the Fed.
