The Fed Acts

As we noted last week the Fed was on track to increase the federal funds rate by 25 basis points. ( See: https://shulmaven.blogspot.com/2026/09/the-die-is-cast-for-fed.html)  Today the Federal Reserve's Open Market Committee acted. What is more, according to the infamous dot plot projection most of the committee member signaled that at least one more hike is in the cards. To add emphasis, Chair Warsh noted that "we removed a dose of accommodation." We would note that with the committee forecasting a 3.7% year-over-year increase in the personal consumption deflator by December indicates a mere 0.2% real funds rate at the new 3.75%-4% target range.  

In response the yield on 2-year U.S Treasuries surged by 7 basis point to 4.74%, thereby confirming at least one more rate hike. The 10-year Treasury advanced by a more modest 2 basis points, while the 30-year was unchanged. In other words a continuation of the "bear flattening" trend.

Although the more cyclical Dow Jones Industrial Average sold off by 1.2%, the S&P 500 was only off by 0.45% and the NASDAQ was flat. Thus, the stock market took the hike and the prospect of another hike by yearend reasonably well. The real issue for the stock market is at the long end of the yield curve. Our view is that long rates will work their way higher with the 10-year exceeding 5.25% and the 30-year exceeding 5.5% by yearend as the secular bond bear market grinds on.