When Kevin Warsh took over the Federal Reserve this spring, he gave markets a sports metaphor: play the ball, not the referee. Watch the economy, he meant — stop parsing the Fed. It took about a week in late September for the officials to blow the whistle anyway, Nick Timiraos reports. Warsh’s explanation of September’s rate rise — rates weren’t yet restraining the economy, inflation needed to fall faster — had been read by traders as a promise, and odds of a second hike in October climbed to around 70%. Then New York Fed President John Williams and Vice Chair Philip Jefferson, the two officials who round out the chair’s traditional troika, signaled one after the other that there was no hurry. Odds fell to around 25%, and Friday’s jobs report pushed them lower still.
The irony is the point. The Fed’s old fear is that telegraphing the next move locks it in — and avoiding that trap is the whole idea behind Warsh’s approach to communication. But Eric Rosengren, who ran the Boston Fed from 2007 to 2021, says the opposite risk showed up: you don’t need to promise a path of rates for traders to infer one, and once they have, somebody has to un-promise it. “It would be awkward for him to do it himself,” Rosengren told the Journal — so he’s doing it through his two vice chairs. The forecasting crowd moved: Kurt Lewis of Piper Sandler, Goldman Sachs (GS) and RBC Capital Markets all dropped their October calls, joining the vast majority of analysts who expect December.
Two things make the six-week gap between Oct. 27–28 and December matter more than usual. One is political: the October meeting falls six days before the midterm elections, and Rosengren notes a one-meeting delay barely registers economically but can matter a great deal politically. The other is that the market already moved. Right after the Sept. 16 hike the 10-year Treasury yielded 5%; by early last week it was around 5.25%, part of a global rise in long rates, and Jefferson pointed to it: higher long-term rates do some of the Fed’s work for it. On Tuesday the 10-year settled at 5.270%.
October vs. December, in your statements
So what does a six-week slip mean at the bank? For money-market funds and Treasury bills, almost nothing but timing: the fed-funds target is 3.75%–4.00%, the 13-week bill auctioned at 4.050% this week, and a quarter-point move shows up in those yields within weeks of whenever it lands. For CDs, banks are already pricing it: the best one-year CD in the Journal’s Bankrate box pays 4.75% and the best five-year 5.00%, against a national-average five-year of 1.78% — the gap between shopping and not shopping dwarfs the gap between October and December. For mortgages, the meeting date is nearly beside the point: the 30-year follows the 10-year, and Bankrate’s 30-year fixed stands at 7.47% in the Journal’s latest box, a 52-week high. The bond market hiked for you in September.
Our read
This is Fixed Income (IN02) and Cash Flow (M5), and the house position is unchanged: safe money in bills and floating-rate Treasurys — SGOV (held in 49 books) and USFR (held in 14) — at weight, nothing added. That isn’t a bet on October or December; it’s the structure that makes the question irrelevant. Long Treasurys (TLT) stay avoided, for the reason this story illustrates: the 10-year went from 5% to around 5.25% without a meeting. As Loretta Mester, the former Cleveland Fed president, put it, “the only person who can speak for the committee is the chair” — and until he does, the long end will keep speaking for him.
For the next three weeks: don’t lock a five-year CD at the national average, don’t refinance on a theory about what’s ‘already priced,’ and don’t chase a long bond because the Fed sounds patient. Keep cash short, shop the one-year CD if you need a fixed number, and price any mortgage decision off the 10-year, not the Fed calendar. Check the umbrella now; the forecast changes on Oct. 28.