9-18-26 The Fed’s Rate Hike Could Hit Harder Than Markets Realize w/ @michaellebowitz The Fed is hiking rates, but one major risk may be getting overlooked: the bond market has already been doing a lot of the tightening for the Fed. Long-term rates have risen, pushing up the cost of mortgages, corporate debt and other forms of borrowing. The problem is that these effects don’t hit the economy immediately. There can be a significant lag between higher long-term rates and when the real economic damage becomes visible. Think of the long end of the yield curve like a huge tanker: it takes time to turn. The short end is more like a speedboat. Fed hikes can quickly raise costs on floating-rate corporate debt, credit cards and other short-term borrowing. Meanwhile, the effects of higher long-term rates continue working their way through the system. Banks are another important piece. The yield curve has been flattening dramatically. The spread between the 10-year and 2-year Treasury has fallen from roughly 75 basis points in February to 50 about a month ago and now around 25. A flatter curve can reduce banks’ incentive to lend. If they do lend, they may demand higher rates, further increasing borrowing costs across the economy. Then there’s the refinancing problem. A company with debt that doesn’t mature until 2027 may feel little impact from today’s higher rates. But when that debt has to be refinanced, interest expense could jump substantially. That’s when companies may respond by cutting spending, investment, hiring or even employees. So the risk is a stacking effect: higher long-term rates have already tightened financial conditions, but their full economic impact may still be coming. Now the Fed is adding additional short-term tightening on top of it. And that gets to the uncomfortable reality of monetary policy: when the Fed fights inflation, it does so by weakening demand. Higher rates are supposed to make borrowing more expensive, reduce spending, slow economic activity and ultimately cool the labor market. The question isn’t simply whether inflation needs to be controlled. It’s how much tightening has already happened beneath the surface — and whether the Fed is adding more before the full consequences of the previous tightening have even arrived. Please ❤️like, bookmark🔖, and 🔁share with fellow investors.

9-17-26 This Fed Hike Is About The Bond Market, Not Inflation The part most people miss about monetary tightening is HOW higher rates actually bring inflation down. The Fed hikes rates primarily to curtail credit and raise borrowing costs. Credit cards, home equity loans and many business loans become more expensive. Consumers borrow less, businesses spend less, and less credit creation flows back into the economy. The objective is simple: weaken demand and slow economic growth. That’s the mechanism through which the Fed fights inflation. It can’t directly control oil prices. You can raise rates to the moon and it won’t fix an oil supply problem. But the Fed can make consumers spend less, businesses invest less and credit harder to obtain. Higher rates → tighter credit → weaker demand → slower growth → softer labor conditions and wages → lower inflation. So everyone may like seeing inflation come down, but they may not like what it FEELS like when inflation comes down. That’s also why the Fed’s projections look questionable. The Fed expects a fairly sharp decline in PCE and core PCE over the next several years, implying significantly lower inflationary pressure. Yet its projections for the end of 2028 still show roughly 2.2% GDP growth — the same growth expectation it had in June — while the projected Fed funds rate is now about 50 basis points higher. If another 50 bps of tightening has essentially no impact on growth, why hike at all? And if higher rates DO slow the economy, why isn’t that showing up more clearly in the projections? Historically, Fed forecasts haven’t been particularly good at capturing turning points. They rarely forecast recessions and typically assume the economy eventually returns smoothly toward the status quo. But economies don’t work that way. They overshoot in both directions. That leads to the bigger question: is this hike really about inflation? The argument here is that it may be much more about the bond market. The Fed may be trying to demonstrate that it remains serious about inflation and maintain credibility with bond investors. If so, this isn’t simply an inflation hike — it’s a credibility hike aimed at the bond market. And the economic consequences of proving that credibility may ultimately be much bigger than the Fed’s projections suggest. Please ❤️like, bookmark🔖, and 🔁share with fellow investors.

9-16-28 The Paradox Of A Fed Hike: Bullish Today, Policy Mistake Tomorrow The market reaction to today’s FOMC decision is unusually difficult to predict because a rate hike could actually be interpreted as bullish in the short term. The thesis is simple: if the Fed hikes, it sends a message to the bond market that policymakers are serious about inflation. If that’s what markets have been demanding, removing that uncertainty could trigger a relief rally — especially after the drubbing stocks have taken over the past several days. But there’s a much bigger question: what if the Fed is hiking into the wrong kind of inflation? Goldman Sachs recently argued that there isn’t a strong economic case for hiking because much of the overshoot above the Fed’s 2% target can be attributed to fading one-time factors, particularly the spike in oil prices. That creates a potentially dangerous setup. Imagine the Fed hikes today, but oil drops back toward $70 over the next several weeks and stays there. Inflation starts cooling again, but the Fed has already tightened financial conditions. And higher short-term rates hit the economy directly. Credit cards become more expensive. Short-term debt costs rise. Buy-now-pay-later financing gets more expensive. More household income gets diverted toward interest payments rather than consumption — particularly for lower- and middle-income households with limited excess cash flow. That’s how a hike designed to establish inflation credibility today could turn into a policy mistake tomorrow. It also explains why some believe the Fed could hike now only to find itself cutting rates again in early 2027 as the effects of tighter policy work through the economy. The paradox is that markets $SPY / $QQQ could still celebrate initially. Stocks are already oversold after several rough sessions. At this point, almost any part of the Fed’s message that investors can interpret positively could be enough to spark a relief rally. So today’s question isn’t simply whether the Fed hikes. It’s whether the market sees the decision as credible enough to rally now — even if the economic consequences eventually force the Fed to reverse course. Please ❤️like, bookmark🔖, and 🔁share with fellow investors.