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Dow Jones Index Records Largest Drop in 15 Months…US 30-year Treasury Yield Hits Highest Since 2007
Experts: 'Bond Vigilantes Warn Chair Warsh to Act on Inflation'
As the U.S. Federal Reserve (Fed) froze its benchmark interest rate, concerns arose that it might be belatedly responding to inflation, leading to a simultaneous sharp drop in stock and bond prices in the U.S. financial market, and an increase in international gold prices.
On this day, the Dow Jones Industrial Average closed at 51,594.14 in the New York stock market, down 1,153.18 points (-2.19%) from the previous trading day.
The Standard & Poor's (S&P) 500 index closed at 7,316.15, down 112.63 points (-1.52%) from the previous close, and the technology-heavy Nasdaq index closed at 24,442.94, down 433.97 points (-1.74%) from the previous close.
With this day's decline, the Dow Jones index recorded its largest drop in 15 months since April last year, when the market was significantly shaken by the announcement of the Trump administration's reciprocal tariff policy.
The Nasdaq 100 index, composed of 100 Nasdaq-listed stocks, fell 1.8% today, dropping more than 11% from its June high and entering a correction phase.
The Fed held a Federal Open Market Committee (FOMC) meeting today and froze the benchmark interest rate at 3.50-3.75%.
Three members, Beth Hammack, Neel Kashkari, and Lorie Logan, argued for a 0.25 percentage point rate hike and cast dissenting votes, but the majority of six members voted to freeze the interest rate.
Fed Chairman Kevin Warsh emphasized in a press conference today that "there is no soft inflation target," stressing the Fed's commitment to achieving its 2% inflation target.
However, the bond market paid more attention to Chairman Warsh's rate decision actions rather than his hawkish tone, raising doubts about his commitment to tackling inflation.
According to electronic trading platform Tradeweb, the yield on 30-year U.S. Treasury bonds surged to 5.21% immediately after the close of the New York stock market today, up 0.11 percentage points from the previous close (bond prices fell).
This is the highest level in 19 years since July 2007, before the financial crisis.
The yield on 10-year U.S. Treasury bonds, a global bond yield benchmark, also rose by nearly 0.1 percentage points today, touching 4.7% immediately after the close of the New York stock market.
Experts assessed that the bond market had sent a warning message to Chairman Warsh.
The analysis suggests that the so-called 'bond vigilantes' dumped U.S. Treasuries after Chairman Warsh's press conference, demanding that the Fed take more aggressive action against inflation.
Jeffrey Gundlach, CEO of DoubleLine Capital, told CNBC today, "If you really want to reach the 2% inflation target, I think you have to raise interest rates."
He added, "The significant rise in long-term Treasury yields after the press conference is the bond market vigilantes saying, 'If you want us to believe your rhetoric, now is the time for action.'"
A surge in international oil prices also fueled inflation concerns.
As the U.S. and Iran resumed their brief cessation of hostilities since last weekend, Brent crude futures surged 7.9% from the previous close, ending at $90.74 per barrel, once again rising above the $90 per barrel mark.
The closing price for U.S. West Texas Intermediate (WTI) crude futures also rose 6.6% from the previous close to $84.46 per barrel.
U.S. President Donald Trump said in a phone interview with Fox News today regarding Iran's surprise attack on a U.S. military base in Jordan, "We're going to hit them hard," escalating concerns about the conflict.
International gold prices rose by nearly 2% following the Fed's decision to freeze interest rates.
According to Reuters, spot gold prices traded at $4,101.99 per ounce around 2:55 PM ET today, up 1.9% from the previous close.
Prior to the Fed's rate decision, spot gold prices had temporarily fallen below the $4,000 per ounce mark during intraday trading today, driven by surging international oil prices and expectations of prolonged high interest rates.
Despite the sharp rise in bond yields, the value of the dollar plummeted.
The dollar index, which reflects the value of the dollar against six major currencies, fell 0.5% from the previous close to 100.94 around the close of the New York stock market.
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