The Federal Reserve on Wednesday held its benchmark interest rate at 3.5 percent to 3.75 percent for a fifth consecutive meeting, but three regional bank presidents dissented in favor of an immediate hike, and a halting first press conference by Chairman Kevin Warsh sent the Dow Jones Industrial Average down 1,153 points and pushed long-term Treasury yields sharply higher.

The 9-3 vote — Wednesday's James St. Journal previewed the coming decision — arrived at Warsh's second Federal Open Market Committee meeting since he succeeded Jerome Powell in May. The dissents, combined with the new chairman's refusal to say what economic data would prompt a hike, left investors more uncertain about the direction of policy than they were before the announcement and revived the question of whether Warsh, who was chosen by President Trump for a communications overhaul, can command the Fed on rates.

Who dissented

The three regional Fed presidents voting for a hike were Beth Hammack of the Federal Reserve Bank of Cleveland, Neel Kashkari of Minneapolis and Lorie K. Logan of Dallas. Splits of that size on the FOMC are rare, and no Fed chair has ever been outvoted on a rate decision. Kay Haigh, global head and CIO of fixed income and liquidity solutions at Goldman Sachs Asset Management, wrote in a note to clients that "The Fed appears to be running out of patience with above-target inflation, despite recent data coming in cold," and said hawkish sentiment inside the committee had "likely been exacerbated by the recent flare-up in hostilities in the Middle East."

The Fed's policy statement described inflation as "elevated" and blamed supply-side pressure from energy prices tied to the war in Iran. Consumer prices rose 3.5 percent in the year to June; inflation has run above the Fed's 2 percent target for more than five years.

Warsh's rough debut

At the podium, Warsh embraced the split. "I asked for a good family fight, and I got one," he told reporters, calling the debate a "design feature" of the committee. But he declined to specify what would move him to raise rates and hinted that one of the five task forces he has commissioned to review Fed practice might recommend downplaying the personal consumption expenditures index as the central bank's official inflation target when its report lands after January.

He also reiterated his preference for stripped-back guidance. "I understand the desire for rolling forecasts and commentary from this committee, but for our part, we need to observe market reaction to developments, direct and unfiltered," Warsh said. Asked what could quickly relieve consumers, he said his board had been in position "eight-and-a-half weeks" and warned there was no "magic wand." "We are on the job, we will deliver, we are focused like a laser on making sure we can do it," Warsh added, "but the suggestion we are going to be able to wave with our magic wand is one I want to disabuse you and everyone else of."

The market's verdict

Stocks briefly rallied on the hold before turning sharply lower after the press conference. The S&P 500 closed down 113 points, or 1.5 percent, at 7,316, its lowest level in a month. The Dow fell 2.2 percent, and the Nasdaq Composite gave up 1.7 percent, leaving the tech-heavy index about 9 percent below its June record. Long-term Treasury yields rose after Warsh spoke, a move CNBC said reflected investor doubt the Fed will move soon on inflation and expectations it will have to act more aggressively later in the cycle.

Michael Feroli, chief U.S. economist at JPMorgan Chase, wrote in a client note that Warsh's silence on his own reaction function and his openness to abandoning PCE targeting "raise questions about the new chair's credibility in delivering lower inflation." Feroli said "this will add some urgency for the rest of the committee to act on its mandate."

Warsh's defenders

Today's reporting came from wire and center-left business outlets; a substantive defense of Warsh's approach from the conservative business press had not surfaced by press time. Warsh himself argued Wednesday that the recent rise in long-term rates may reflect strong business investment rather than eroding confidence in the Fed. Mark Zandi, chief economist at Moody's Analytics, told CBS News before the meeting that the standard playbook in a supply shock like the Iran war is to hold rates unless inflation expectations move, and that "the inflation will not become entrenched and it'll fade once the shock is over."

Futures traders put the odds of a quarter-point hike at the FOMC's September meeting at about 53 percent, according to CBS News. Warsh's next scheduled test with markets arrives then.