Sometimes things don’t work out as planned…
On September 18, the Federal Reserve cut the federal funds rate by 50 basis points. This was the first time the Fed cut rates since March 16, 2020. The aggressive rate cut was goaded on by people like Elizabeth Warren, who said Fed Chair Jerome Powell was “behind the curve.”
Over the last three weeks something unexpected by the Fed has happened. The yield on the 10-Year Treasury didn’t follow the Fed’s rate cut down. Rather, it did the opposite. It went up.
This week the yield on the 10-Year Treasury spiked above 4 percent for the first time since July 31. The yield on the 2-Year Treasury note also topped 4 percent. Thus, the Treasury market is not cooperating with the Fed’s desire for cheaper credit.
Could it be that Warren was wrong, and the Fed wasn’t behind the curve after all? Was September’s 0.50 percent rate cut a policy mistake? Will the Fed add to its mistake with an additional rate cut in November? Continue reading