Sunday, September 20th. The Fed Tightens Again as the Economy Runs Hot

Yeah, you know, the highly anticipated Fed meeting was earlier this week, and the market was pretty good about estimating what was going to happen, and they were correct.

It was a quarter point raise.

And ironically, the 10-year Treasury and the 30-year Treasury went down.

Yes.

Right? So the funny thing about it is the market was setting the rate, the rate went up, and then the thing came down.

So really the important piece is why did it happen? And of course, where do we go from here?

Oh, absolutely.

And it is not unusual to see the longer-term interest rates.

So the Federal Reserve, they control that short-term, the federal funds rate.

But those longer-term rates, they can march to the beat of their own drummer.

But those do sometimes go down when the Fed starts hiking because what it can do is signal that, well, gosh, the Fed is on the case.

They are actually concerned about inflation.

They're going to take action.

And it's those inflation expectations that can get built into those long term rates.

So we did see inflation expectations come down a little bit, not a lot, because a lot of what has been pushing up the longer term interest rates have been things like debt issuance by hyperscalers.

You've also got the government issuing a lot of debt.

You also have people getting excited about growth, right? So you've got those other factors that have been really moving those long term interest rates.

Now, where do we go from here? I think that what we saw with the summary of economic projections, you have referred to those as the DART plots.

Not DART.

That's right.

What those are showing is that about 12 or 14 individuals on the Fed are thinking that maybe we're going to get two hikes total this year.

So that would either be another one in October or in December.

Probably December would be my guess if they do follow through.

And even if it's the first quarter of 27, it's rarely just one hike.

So that would be unusual if they just hiked it once, and there might be another one near the end of the year or early next quarter.

Yeah, you know, the highly anticipated Fed meeting was earlier this week, and the market was pretty good about estimating what was going to happen, and they were correct.

It was a quarter point raise.

And ironically, the 10-year Treasury and the 30-year Treasury went down.

Yes.

Right? So the funny thing about it is the market was setting the rate, the rate went up, and then the thing came down.

So really the important piece is why did it happen? And of course, where do we go from here?

Oh, absolutely.

And it is not unusual to see the longer-term interest rates.

So the Federal Reserve, they control that short-term, the federal funds rate.

But those longer-term rates, they can march to the beat of their own drummer.

But those do sometimes go down when the Fed starts hiking because what it can do is signal that, well, gosh, the Fed is on the case.

They are actually concerned about inflation.

They're going to take action.

And it's those inflation expectations that can get built into those long term rates.

So we did see inflation expectations come down a little bit, not a lot, because a lot of what has been pushing up the longer term interest rates have been things like debt issuance by hyperscalers.

You've also got the government issuing a lot of debt.

You also have people getting excited about growth, right? So you've got those other factors that have been really moving those long term interest rates.

Now, where do we go from here? I think that what we saw with the summary of economic projections, you have referred to those as the DART plots.

Not DART.

That's right.

What those are showing is that about 12 or 14 individuals on the Fed are thinking that maybe we're going to get two hikes total this year.

So that would either be another one in October or in December.

Probably December would be my guess if they do follow through.

And even if it's the first quarter of 27, it's rarely just one hike.

So that would be unusual if they just hiked it once, and there might be another one near the end of the year or early next quarter.