This is a comparison of Wednesday’s Federal Open Market Committee statement with the one issued after the Fed’s previous policymaking meeting in July.
As expected, the Fed raised rates by 25 basis points in a unanimous decision The dot plot showed that 16 of 18 participants expect at least one additional hike this year. However, this does NOT appear to be the start of an aggressive tightening cycle. Policymakers do not project further increases in the federal funds rate over the following years. A unanimous rate-hike decision, and large majority also signaling at least one more hike in 2026 hides the reality that 2027 outlooks are massively divided with four members signaling a 'policy error' implicitly with 3 seeing 2 cuts and 1 seeing 4 cuts... The statement and dots were more hawkish than expected overall as The Fed took away the projected median cut next year. October odds initially declined but then jumped (right before Midterms?) to 57% while December odds of a hike jumped to 75%... While noisy, 2027 rate-hike expectations rose to around 40bps (2026 expectations are now for another 30bps)... 👉 Warsh explained that a resilient labour market, persistent inflation concerns and geopolitical tensions had shifted the committee in favour of a hike. 👉He described the hike as removing a degree of accommodation. In practice, the Fed may be reversing the three rate cuts delivered in 2025—leaving room for UP TO TWO additional hikes. Warsh also suggested that intense competition for capital, particularly from technology hyperscalers, may be contributing to higher US bond yields. 🔴 Conclusion: Yesterday’s hike, and potentially another 25-basis-point increase this year, gives the Fed time to see whether oil prices retreat. A third hike could follow in early 2027 if necessary, fully reversing last year’s easing cycle. Source image: zerohedge
My take on yesterday's FOMC 👇
As expected, the Fed raised rates by 25 basis points in a unanimous decision The dot plot showed that 16 of 18 participants expect at least one additional hike this year. However, this does NOT appear to be the start of an aggressive tightening cycle. Policymakers do not project further increases in the federal funds rate over the following years. A unanimous rate-hike decision, and large majority also signaling at least one more hike in 2026 hides the reality that 2027 outlooks are massively divided with four members signaling a 'policy error' implicitly with 3 seeing 2 cuts and 1 seeing 4 cuts... The statement and dots were more hawkish than expected overall as The Fed took away the projected median cut next year. October odds initially declined but then jumped (right before Midterms?) to 57% while December odds of a hike jumped to 75%... While noisy, 2027 rate-hike expectations rose to around 40bps (2026 expectations are now for another 30bps)... 👉 Warsh explained that a resilient labour market, persistent inflation concerns and geopolitical tensions had shifted the committee in favour of a hike. 👉He described the hike as removing a degree of accommodation. In practice, the Fed may be reversing the three rate cuts delivered in 2025—leaving room for UP TO TWO additional hikes. Warsh also suggested that intense competition for capital, particularly from technology hyperscalers, may be contributing to higher US bond yields. 🔴 Conclusion: Yesterday’s hike—and potentially another 25-basis-point increase this year—gives the Fed time to see whether oil prices retreat. A third hike could follow in early 2027 if necessary, fully reversing last year’s easing cycle. Source image: zerohedge
There is now an 89% chance of another rate hike by December
Source: Barchart
Not all Fed hiking cycles are equal.
Historically, the higher the inflation when the Fed begins to hike, the worse equities have performed. The faster the tightening cycle, the worse equities have performed. Source: David Marlin, UBS, Factset
US equites usually struggle around first hike
Source: RBC, Bloomberg
Once the Fed starts tightening, it rarely stops after one move.
Historically, hiking cycles persist for some time, with the 10-year yield generally rising by more than 100bp along the way. Judging by the history surveyed by DB’s Jim Reid, investors should brace for the 10-year to reach 6% before the Fed is done. Source. TME, DB
The S&P has fallen on five consecutive Fed days (every Fed day this year).
It fell on Powell's last three as Chair, and Warsh's first two as Chair. It's the second longest losing streak behind 7 straight that ended in December 2018. Source: Bespoke
WILL THE FED'S EXPECTED RATE HIKE MAKE THE US DEBT PROBLEM EVEN WORSE ???
As 30-year Treasury yields surged above 5% in May 2026, the US government sharply increased its reliance on short term debt. Since July, over 75% of the increase in marketable Treasury debt has come from T-bills, versus just 18% in 2025. US now has a record $7.25 trillion in T-bills outstanding, all of which mature within a year and need to be constantly refinanced. But T-bill yields are already around 3.8-4%, and the Fed is now expected to hike another 25 bps on Wednesday. The Treasury escaped expensive long-term borrowing by leaning harder on short-term debt. Now that short-term debt is getting more expensive too. Source: Bull Theory
