Quick Read – A 9-3 FOMC split on holding rates at 3.75% triggered bear steepening, dollar weakness, and rising breakevens, which are classic emerging-market credibility-shock signals. – The 10-year Treasury yield surged to a 12-month high of 4.75% as the 10Y-2Y spread nearly…
ubled to 0.47 points. – Warsh is weighing cutting scheduled FOMC meetings below 8 per year, a shift that could amplify volatility between decisions. – Bank of America is warning that Federal Reserve Chair Kevin Warsh faces an emerging-market-style “credibility shock” following the FOMC’s latest split decision, according to a note highlighted by Bloomberg’s Joe Weisenthal. The committee voted 9-3 to hold policy steady, keeping the fed funds upper bound at 3.75%, where it has remained for nearly eight months since December 11, 2025
The three dissents rattled traders. In the note, Bank of America wrote: “The market immediately priced it with a bear steepening, higher inflation breakevens, and higher risk premia. A steeper curve, lower equities, and a weaker dollar is the typical price action associated with credibility shocks faced by EM central banks.” Market data support the framing.
The 10-year Treasury yield reached 4.75% on July 31, 2026, its highest level in 12 months, before easing to 4.70% this week. The spread between 10- and two-year yields widened from a June low of 0.27 percentage points to 0.47 points on July 31, reinforcing the steepening signal. Core PCE, a closely watched measure of underlying inflation because it strips out volatile food and energy prices, sits in the 90.9th percentile of its 12-month range.