Stock futures rise as S&P 500 stabilizes after Fed's 9-3 hold

U.S. equity futures edged higher Thursday as markets steadied after the Federal Reserve's decision to hold rates drew three dissenting votes favoring a hike.

The S&P 500 pared its 1.5% decline from the prior session as futures rose, stabilizing after the Fed's fifth consecutive rate hold drew three dissents for a quarter-point increase.

"The market's breathing a collective sigh of relief that the Fed did not raise rates," said Adam Sarhan, chief executive at 50 Park Investments. "By not raising, that, in and of itself, alleviated a lot of pressure."

The S&P 500 closed at 7,316.37 Wednesday, down 1.5%, while the Dow Jones Industrial Average fell 1,152.46 points, or 2.18%, to 51,594.86. The Nasdaq 100 dropped 2% to 27,192.31. The 10-year Treasury yield rose 7 basis points to 4.643%, and the dollar index fell 0.49% to 100.92. Brent crude surged 7% to top $90 a barrel after fresh fighting between the U.S. and Iran.

The hold keeps the Fed in a holding pattern until its Sept. 16 meeting, with three of 12 FOMC members already pushing for tighter policy. Warsh's first Jackson Hole address in late August will offer the next window into the central bank's thinking.

The Federal Open Market Committee voted 9-3 to hold the benchmark rate in a range of 3.50% to 3.75%, with Beth M. Hammack, Neel Kashkari and Lorie K. Logan preferring a quarter-point increase. It was the most dissenting votes since April and the first split of Chair Kevin Warsh's tenure.

"The dissents may reflect a new paradigm of independence of the members and lack of a united front," said Mark Hackett, chief market strategist at Nationwide Investment Management Group. Still, he said the market was experiencing a "relief rally" after some traders had positioned for a hike.

Technology stocks led the selloff Wednesday, with chip shares tumbling before recovering some losses. Nvidia fell as much as 3% during the session before paring declines as Warsh delivered his remarks. The energy sector gained as oil prices surged on escalating Middle East conflict, with Brent crude topping $90 a barrel for the first time since April.

The 10-year Treasury yield jumped 7 basis points to 4.643%, its highest level in months, while the 30-year bond yield reached levels not seen since 2007. The two-year yield slipped to 4.26%, suggesting markets see rates edging lower in the near term but moving higher over time as inflation remains sticky. Spot gold rose 1.2% to $4,076.41 an ounce as investors sought havens.

Warsh said the FOMC is "laser-focused" on bringing inflation back to 2% and that the hold decision reflected a "rigorous review" rather than a pause. He declined to provide forward guidance, saying he wants markets to react to real-time economic data rather than central bank projections. "This is the beginning of the story, not the end of the story," he told reporters.

The inflation picture remains mixed. The Consumer Price Index stood at 3.5% on an annual basis in June, down from 4.2% in May but still well above the Fed's 2% target. Energy prices have added to the pressure, with the average U.S. gasoline price rising to $4.09 a gallon, up from $2.98 before the U.S.-Iran conflict began in late February.

"The Fed really is in a rough spot here," said Ryan Detrick, chief market strategist at Carson Group. "We saw some improvement in last month's inflation data. From shelter, to apparel, to car prices, all slowing." Still, he said the market expects the next hike to come in September.

The next FOMC meeting is scheduled for Sept. 16. In the interim, Warsh will deliver his first keynote address at the Jackson Hole Economic Policy Symposium in late August, where he said he plans to "frame the big questions" around productivity, demographics and the global economy.

This article is for informational purposes only and does not constitute investment advice.