Ed Dowd: The Fed Hiked Interest Rates Into A Supply Shock
ZeroHedge ·
Ed Dowd: The Fed Hiked Interest Rates Into A Supply Shock Authored by Ed Dowd: Beyond the Narrative via Substack , September FOMC Meeting: First Rate Hike Since July 2023 The FOMC did what the front end of the Treasury market (3-month T-bill) had been telegraphing for two weeks prior. On September 16 they voted unanimously to raise the fed funds rate 25 basis points to 3.75-4.00 percent . Kevin Warsh's press conference was short, blunt, and deliberately light on forward guidance. He said economic activity is expanding at a solid pace, job gains are keeping up with the workforce, unemployment is little changed around 4.1 percent, and inflation remains elevated. He argued the hike "will support a timelier return" to the 2 percent goal and "This Committee will deliver price stability." He did not submit his own dot. The rest of the Committee's median projection for fed funds now sits at 4.1 percent at year end and stays there through 2027. They mentioned inflation risks are to the upside and that labor risks are roughly balanced. Geopolitical shocks and commodity prices got a mention, but they hiked anyway. Why Did They Hike? The day before the meeting I posted on X that starting September 2 the 3-month T-bill yield had moved above our simple Fed-funds-rate/T-bill model. Historically the Fed follows the market more than the market follows the Fed. The signal pointed to a minimum 25 basis-point move, with 50 not being out of the question. Politics could have intervened, after all this is right before the midterms, but the Committee chose to follow the tape. They chose 25 but the T-bill market yield of 4.09 said 50 would have been the cleaner signal. The market two weeks before the decision, in my opinion, was starting to discount the energy and commodity shock as something more durable than a temporary disruption. The war is not wrapping up on a convenient political calendar. The Iranians have little incentive to resolve it before November. A war sold as a two-week excu
DYAX Investor Sentiment
Bullish (Long) 51% · Bearish (Short) 49%
425 participants
Related News
- US President Trump says Japanese PM has done a great job, Japan doing well; Will talk about China-Japan relations with Takaichi
- Open AI will reportedly allow outside groups assess AI models at an earlier phase
- US sells USD 69bln of 2yr notes: Tail 0.2bps
- US Money Supply (Aug) 23.34T (Prev. 23.22T)
- Fed's Barkin says Fed raised rates last week because risks to inflation outweigh risks to maximum employment
- Qatar Emir Emphasizes Diplomacy for Gulf Crisis as Iran Sets Conditions for US Talks
