It’s a hike – And maybe more

The Federal Reserve (Fed) delivered a 25bp hike, pointing to above-target inflation, as widely priced in by analysts, and the dot plot – which Kevin Warsh refused to add his own dot to – hinted that there could be one more rate hike before the year ends. Broader expectations are that we could see three more by mid-next year.

Furious to see his new guy hike rates a few months into the job, “lower the interest rates for the United States of America, and fast!” cried Donald Trump. I don’t know if this is scripted theatre or if this is real, but with this, the Fed has probably begun a rate-tightening cycle.

The decision triggered a hawkish market reaction. The US 2-year yield spiked to 4.74%, while the 10-year yield hovered around the 5% mark – but overall, the reaction at the longer end of the yield curve was more contained. And tell Trump that that’s exactly what the Fed wanted and NEEDED to do: ease pressure on the longer end of the curve to keep borrowing costs in check.