Bond traders take a turn in the spotlight
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Why did the Fed raise interest rates for the first time since July 2023?
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This won't surprise you. I'm not in the forward guidance business.
No Chairman Walsh, no surprise at all. From American public media. This is Market Class.
In Los Angeles, I'm Kai Risdal. Wednesday today, sixteenth September, good as always to have you along, everybody. Kevin Walsh, the global economy is discovering, is a man of few words. So few, in fact, that in just a single one of his answers at his press conference today can be found his working theory of this economy.
As you might know, I'm not a data point dependent guy, um, so I won't I won't react one way or another to data that that shows up on on our doorstep. But on your first question, I think the more important one, what transpired in the seven weeks since we last met? What indeed? I'll highlight three things that have happened in that intermeeting period. Please do. One is um I made out a judgment seven weeks ago. About the strength of the economy. There's been a pretty wide-ranging set of data, including the labor markets, that the economy has strengthened. You might have heard me say that in Jackson Hole a few weeks ago. It's a judgment that I have and the committee has. I said in Jackson Hole, trends matter.
I said in Jackson Hole we need to look outside the city. the window and interrogate reality. Um my judgment some weeks ago was the inflation summer trends weren't passing the test. I've seen very little information since that would make me reverse that decision, so I've stuck with it.
Inflation trends not passing the test, that is important. Thing number three then.
And the third thing that's changed in seven weeks are geopolitics. And there's no hiding from hot spots around the world, and uh our judgment about what is the most likely or least likely of the geopolitical situation has changed.
Changed as in not gotten better.
All three of those things led lend themselves to a firm unanimous decision today.
And that, ladies and gentlemen, is how the Federal Reserve's target for its main interest rate finds itself this afternoon a quarter of a percentage point higher than it was when the day began. Wall Street today Well tell you what, when the Fed chairman starts talking about inflation trends not passing the test, traders do not much care for that. We will have the details when we do the numbers.
How are bond traders reacting to the Fed’s rate hike and tighter inflation outlook?
The thing about Chairman Warsh not doing the forward guidance thing is that markets are kind of left on their own to figure out what's going on, and that can get bumpy sometimes. Exhibit A for us of late is the bond market caught between elevated inflation and a tight-lipped Fed. What's that like, d'ye suppose? Marketplace Sabre
Benershore made some calls. You know, usually it's the stock market people who get all the glory and the headlines and the views. Now it's the bond people's time to shine. Marvin Lowe, a senior global macro strategist at State Street Markets. There's a hundred and sixty one trillion dollars worth of bonds in the world, more than the value of all stocks.
This is the bond market that drives everything.
They touch everything from mortgages to stocks. One of the many things that drives the bond market is the Federal Reserve, though, and under Kevin Walsh, the Fed has stopped telling the bond market what it's thinking as much. Vinny Blue does fixed income research for Raymond James, which is a marketplace underwriter. He says a terse Fed is cool with him.
Clients are gonna come to us and and wanna know what we think. It really opens up an opportunity for us to fill that void that the Fed may not be filling as much as they used to.
Still, the spotlight is not always kind. Andrew Clinton is CEO of Clinton Investment Management.
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Chapters
7 chapters
1
Why did the Fed raise interest rates for the first time since July 2023?
0:00–3:31
2
How are bond traders reacting to the Fed’s rate hike and tighter inflation outlook?
3:31–7:11
3
What does it mean that bond markets are now in the spotlight instead of stocks?
7:11–11:06
4
How will higher borrowing costs affect home‑buying affordability and mortgage rates?
11:06–15:41
5
What is “fiscal dominance” and how could it limit the Fed’s independence?
15:41–20:33
6
How did post‑World‑War II U.S. policy illustrate fiscal dominance in practice?
20:33–26:18
7
What is “repayment avoidance” and why are younger consumers ghosting shared expenses?
26:18–27:03