Fed Rate Freeze Sets US Borrowing Costs Skyrocketing

The US Federal Reserve (Fed) has maintained its key interest rate at between 3.5% and 3.75%, but this decision has sent shockwaves through financial markets, with borrowing costs hitting a 19-year high.

The yield on the 30-year US Treasury bond rose to nearly 5.24%, while investors are now pricing in a lower chance of a rate hike at the Fed's September meeting, from nearly 100% earlier this week.

Fed Chair Kevin Warsh reassured markets that the central bank remains committed to tackling rising prices, stating 'There is no soft implicit target: not on this committee’s watch. There’s only a target and it’s 2%. This Fed will not waver … Our credibility rests on performing our duties and delivering on our responsibilities.'

Economist Felix Schmidt of Berenberg noted that Warsh's statement did not provide clarity on the Fed's decision to hold rates steady, suggesting that higher capital market interest rates might be seen as a tool to combat inflation in the short term.