Market Perspectives
The Federal Reserve raised rates 25 basis points to 3.75%-4.00%, its first increase since 2023 and a unanimous vote, with new chair Kevin Warsh saying inflation is "too high and has been for too long" and framing the move as supporting a "timelier return" to the 2% goal. The 10-year Treasury crossed 5% for the first time since October 2023 and the 30-year reached 5.386%. The Bank of Japan raised to 1.25%, the highest since 1995, while the Bank of England held. Oil gave back much of its war premium after Saudi Arabia said it would restore half the damaged East-West pipeline within days. Index moves concealed an unusually split tape: the Nasdaq rose 0.72% while the Dow fell 1.71% and small caps fell 1.50%, with transports, industrials and consumer discretionary down for a fifth consecutive week and fewer than half of S&P 500 members above their 200-day averages. The dollar had its best week since May.…
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BONDS & MACROECONOMICS
The Federal Reserve raised the funds rate 25 basis points to 3.75%-4.00% in a unanimous vote, its first increase since 2023. The Summary of Economic Projections showed 12 of 18 members expecting a further 25 basis points this year and four expecting 50. Chair Kevin Warsh said inflation is "too high and has been for too long" and described the decision as supporting a "timelier return" to the 2% goal. The 10-year Treasury yield touched 5.014% on Monday, its first breach of 5% since October 2023 and only the second since 2007, and closed the week at 5.00%; the 30-year reached 5.386% and the two-year 4.679%. The Summary of Economic Projections lifted the median policy rate for end-2026 to 4.1% from 3.8% in June and removed the cuts previously anticipated for 2027. Drivers included Brent near $108, price indices well above target, the federal deficit and heavy corporate issuance funding AI infrastructure; the correlation between Treasuries and crude is now above 90%. Markets priced roughly 60% odds of a further hike on 28 October and at least one full increase by year-end. The Bank of Japan raised to 1.25%, the highest since 1995, on a 7-2 vote, while the Bank of England held. The euro fell almost 1% to 1.1483.
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