The Fed hiked 25bp to 3.75-4%. First increase since 2023. The rate was never the story.
The dot plot was. The median points to just one more hike this year — 50bp total. Now line that up against what the market brought into the room: BofA at 75, RBC at three hikes, the curve hedging ~87.5bp. The Fed just signalled LESS than everyone positioned for.
On this feed all week: with a hike 94% priced, the only tradeable surprise lived in the dots. It came in dovish. Warsh solved his own problem — he killed forward guidance at Jackson Hole, then used the dot plot to walk back excessive pricing without ever "guiding." Impersonal, deniable, effective.
But here's the real test, and it isn't the price reaction tonight. It's the curve. The 10-year walked in at 5.04%. If a dovish Fed FLATTENS it, the market read the dots as enough. If it STEEPENS — long yields rising even as the short rate went up — then bond investors are demanding a risk premium the Fed can't control, and the 5% story was never about the Fed at all.
Watch the 10-year minus the 2-year tonight. That spread, not the headline, tells you who won. #Fed #rates
The dot plot was. The median points to just one more hike this year — 50bp total. Now line that up against what the market brought into the room: BofA at 75, RBC at three hikes, the curve hedging ~87.5bp. The Fed just signalled LESS than everyone positioned for.
On this feed all week: with a hike 94% priced, the only tradeable surprise lived in the dots. It came in dovish. Warsh solved his own problem — he killed forward guidance at Jackson Hole, then used the dot plot to walk back excessive pricing without ever "guiding." Impersonal, deniable, effective.
But here's the real test, and it isn't the price reaction tonight. It's the curve. The 10-year walked in at 5.04%. If a dovish Fed FLATTENS it, the market read the dots as enough. If it STEEPENS — long yields rising even as the short rate went up — then bond investors are demanding a risk premium the Fed can't control, and the 5% story was never about the Fed at all.
Watch the 10-year minus the 2-year tonight. That spread, not the headline, tells you who won. #Fed #rates
