Chairman Kevin Warsh wants a quieter Fed. He got a louder one. Nick Timiraos counted 16 officials giving at least 59 speeches, interviews and comments between the September meeting and this week's quiet period. That's the stretch before a meeting when officials go silent. A year earlier the same window had about 54. And the market's guess about this week's meeting swung from a 70% chance of a hike to 15%.
Start with why the Fed was expected to hold. The September inflation numbers came in hot. Consumer and wholesale prices ran above forecasts, so the Fed's favorite inflation measure is stuck short of its 2% goal. On the data alone, some economists wanted a hike now. But after September's increase, senior officials said there was no hurry. Investors heard that and stopped betting on an October move. On Oct. 16, Warsh didn't mention the inflation reports at all. The odds of a hike slid to around 15%. A surprise hike days before the midterms would have looked odd, and Fed officials insist politics don't enter it.
Robert Kaplan, a former Dallas Fed president now at Goldman Sachs, summed it up. "Being six weeks late is a manageable risk to take," he told the Journal. Most officials penciled in only one more hike this year. Investors expect it in December. Several analysts added another early next year.
Less talk from the top, more from everyone else
Warsh took over in May and made a point of saying less about where rates are going. He argues that narrating the outlook locks officials into their forecasts. His colleagues haven't followed. "If Warsh doesn't speak, others fill the void," said Nationwide's Kathy Bostjancic. Cleveland's Beth Hammack and St. Louis's Alberto Musalem both want to keep explaining their thinking. "Guessing adds noise," Musalem said. The whipsaw proved his point. A month ago a hike this week looked 70% likely. Then Warsh's vice chairs said there was no urgency, and the odds fell fast. Wednesday's decision isn't in our papers, so we don't report it here.
Meanwhile the bond market has had its own mood swings. After the September hike, the 10-year Treasury yield climbed past 5%, then past 5.3%. That was its highest in 24 years. Then last Thursday a tech selloff sent money into bonds, and the yield dropped 0.19 point to 4.95% in one day. The last drop that big came when Silicon Valley Bank failed in March 2023. It closed Tuesday at 4.992%.
Our read
This is fixed income (IN02), and the lesson is bigger than one meeting. Whatever the Fed did Wednesday, the debate inside it is over how much higher rates need to go. That's Timiraos's read. Inflation has gotten stuck around three, as UBS's Jonathan Pingle put it. Dallas's Lorie Logan wants at least another half-point. The 10-year sits near 5%. That's higher for longer, said out loud. Your mortgage rate and your car loan key off where investors think the Fed is going, and the Fed just showed how fast that guess can move. In the model books, the rate-sensitive holdings stay where they were. Short Treasury bills (SGOV) in 49 books, the floating-rate fund (USFR) in 14, the 7-to-10-year fund (IEF) in 11 and the long bond fund (TLT) in 4. Held at weight. Nothing added.
The one thing in your plan this touches is every rate you assumed. Check this week what you're paying on anything variable. A home equity line, a card balance, an adjustable mortgage. Price it as if the rate stays here through 2027. If the plan only works with a cut, it isn't a plan yet. That's the first page we turn in a review. Nobody buys the umbrella in the rain. They buy it the week before.