The Federal Reserve voted 9-3 on Wednesday to hold its benchmark federal funds rate at 3.5% to 3.75%, marking the seventh straight meeting without a move. Three regional bank presidents u2014 Beth Hammack of Cleveland, Neel Kashkari of Minneapolis, and Lorie Logan of Dallas u2014 dissented in favor of a 25-basis-point increase, citing inflation that has remained above the Fed's 2% target for more than five years. The dissents were the most since September 2016.
Chair Kevin Warsh, presiding over his second FOMC meeting, reinforced his break from the Fed's recent practice of providing forward guidance on rate expectations. Warsh told reporters at his post-meeting press conference that the central bank 'will not hesitate to act' if conditions demand it, but declined to forecast the direction of policy u2014 a stance he acknowledged produces uncertainty. He called the internal disagreement 'a real family fight' and framed the debate as healthy deliberation rather than a sign of dysfunction.
Bond markets reacted sharply. The 30-year Treasury yield climbed to 5.23% on Thursday, the highest since 2007, extending an 11-basis-point spike from Wednesday's session. The Dow Jones Industrial Average dropped 1,153 points on Wednesday, its worst day since April 2025, while the S&P 500 fell 1.52% and the Nasdaq slid 1.74%. By Thursday morning, equity futures were attempting a modest recovery u2014 Dow futures up 0.31%, S&P 500 futures up 0.35%, and Nasdaq 100 futures up 0.61% u2014 aided by Microsoft's strong earnings.
The rate hold arrives the same morning that the BEA is releasing its advance estimate of Q2 2026 GDP and June PCE data u2014 the Fed's preferred inflation gauge u2014 both at 8:30 a.m. ET. Analysts surveyed by Axios expected Q2 GDP to show continued underlying growth driven by AI-related investment and a consumer spending rebound, while consensus for June core PCE was approximately 3.3% year-over-year, a slight easing from May's three-year high of 3.4%. The Fed's next scheduled meeting is September 15-16, with Warsh expected to speak at Jackson Hole in between.
Uncertainty over the Fed's policy path pushed U.S. 30-year yields to 5.23% on Thursday, the highest since 2007, and the selloff spread to longer-dated bonds in Australia, New Zealand, and Japan. The Dow's 1,153-point Wednesday decline was its worst single-session drop since April 2025, though futures pointed to a partial Thursday rebound as investors turned to Microsoft's earnings for support.
The BEA's first estimate of Q2 2026 GDP and the June personal income and outlays report u2014 containing the Fed's preferred PCE inflation gauge u2014 were both scheduled for release at 8:30 a.m. ET Thursday. Analysts anticipated that core PCE would ease slightly to approximately 3.3% year-over-year from May's three-year high of 3.4%, while the Q2 GDP print was expected to reflect stable underlying growth powered by AI-related business investment and recovering consumer spending.
Brent crude eased to $87.30 a barrel early Thursday, down 0.9%, after surging nearly 8% the previous session when the U.S. military intercepted a surprise Iranian missile attack and Iran-backed militias struck Saudi oil facilities in the Eastern Region for a second consecutive day. Tankers continued to transit conflict zones, limiting further upside, but Iran's rejection of a Strait of Hormuz sharing proposal and Houthi reports of potential Red Sea transit fees kept supply-chain cost risk elevated.
Microsoft reported fiscal fourth-quarter revenue of $90 billion, up 18% year-over-year and above the $87.6 billion analyst consensus, while net profit climbed 31% to a record $35.8 billion. CEO Satya Nadella said Azure revenue surpassed $100 billion for the first time in fiscal 2026 and that Microsoft 365 Copilot reached more than 30 million paid seats. The company guided for revenue of $89.85 billion to $90.95 billion in the next quarter, with Azure expected to grow approximately 45% in constant currency.
Meta reported Q2 2026 revenue of $60.80 billion, a 28% year-over-year increase, as ad impressions rose 14% and average ad prices climbed 12% on a family daily active user base of 3.6 billion. Total costs and expenses surged 55% to $42.03 billion, including $2.40 billion in legal charges and $1.18 billion in severance tied to a May headcount reduction. Capital expenditures reached $31.08 billion, leaving free cash flow at just $784 million despite record revenue.
Apple will release its fiscal third-quarter 2026 results after the market closes Thursday in what will be Tim Cook's final earnings call as CEO before hardware executive John Ternus takes over. Analyst consensus called for revenue near $109-110 billion and earnings per share of $1.89, with investors focused on iPhone demand, services revenue, and Apple Intelligence adoption. Amazon reports the same evening with AWS cloud growth the key swing factor, as analysts have been raising cloud estimates on robust AI-driven demand.
Fed Chair Warsh's removal of forward guidance from FOMC statements means businesses and lenders can no longer lean on official rate-path signals when pricing loans and planning investment. The Fed's full committee in June penciled in one quarter-point rate increase by year-end, and three members at the July meeting voted to hike immediately; the next decision is September 16, with Jackson Hole in between. Warsh told reporters the Fed 'remains focused on achieving 2% inflation' and has 'no tolerance' for elevated price levels.
The Fed's refusal to cut u2014 and the real possibility of a hike by year-end u2014 means borrowing costs are not coming down soon. Business owners carrying variable-rate debt, planning equipment purchases, or negotiating commercial leases should pressure-test budgets against a rate environment that could be higher six months from now than it is today. The 30-year yield at 5.23% directly affects any long-duration financing, including commercial real estate.
Energy and input costs remain volatile following Wednesday's crude oil spike, which was driven by drone strikes on Saudi facilities and ongoing Strait of Hormuz tension. Companies with significant fuel, freight, or petrochemical inputs should review hedging positions and supplier contracts. At the same time, the strong Microsoft and anticipated strong Amazon AWS results confirm that AI-driven cloud infrastructure spending is continuing at pace u2014 businesses investing in AI tooling are moving with, not against, the dominant capital allocation trend of this cycle.