5Y-30Y not buying today's Fed pause

But Kevin Warsh was damned if he hiked, and damned if he didn't, because of the election next week.

 

LOL The Wall Street Journal Editorial Page tries to intimidate the Fed while putting lipstick on a pig

 The chutzpah of these people.

They mince the data for five paragraphs and then spring a zinger in the last one. 

Total nonfarm was up only 29,000 seasonally adjusted in September, but civilian employment was up 406,000 you see.

 

A Burst of New Workers in September

Wall Street Journal 

 

The labor force grew by 485,000, and most of those found work.

 

... The labor report should have no bearing on the Federal Reserve’s interest rate decision later this month. In any case, the Fed should stand pat this close to an election, as we’re confident Chairman Kevin Warsh understands.

 

Meanwhile:

 

... the threshold for a statistically significant change in the household survey is about 650,000. ... 

 

But we can play the game, too.

 

The civilian employment level seasonally adjusted is certainly higher than when Trump was elected in November 2024, but what The Wall Street Journal won't say is that civilian employment is still lower than when Trump took office in January 2025, and still lower now than it was for most of 2025.

 

The positive change to the civilian employment level of 2025 is yesterday's news. We've had nine consecutive months of negative change in 2026. 

 

It hasn't been a booming economy for employment since Christmas. And in fact it has been contracting.

 

 

Core pce inflation has been above 2% year over year for 65 consecutive months in Aug 2026 and range-bound around 3% yoy since Mar 2024, 29 months

Obviously the Fed is content with this, or it would actually fight inflation instead of pretend to fight it.

The Federal Funds Effective Rate has averaged just 3.3% 2021-2026 inclusive.

 

Like hell he did

 Trump says he told Warsh to vote for hike with the rest of Fed board: ‘It’s not going to matter’

CNBC is all about how to trade the easy money, that's all

 Inflation persisted in August, potentially locking in a Fed interest rate hike

... The report is the final major inflation indicator the Fed will see before it holds its policy meeting next week, concluding Wednesday with a vote on its key interest rate.

Traders responded to the numbers by ramping up bets that the Federal Open Market Committee will increase its benchmark interest rate by a quarter percentage point. Odds for a hike jumped to nearly 90%, according to the CME Group’s FedWatch tracker of fed funds futures prices. ...

 

C'mon man, the Fed has bought trillion$ in U.S. Treasury securities and can't keep yields down, how is the Treasury buying billion$ going to do anything?

This is nothing but another gimmick in a long line of gimmicks, brought to you by the unserious.

Serious governments attack high interest rate problems by cutting spending and raising taxes. 

Neither American political party has had the courage to do those things in decades because Democrats demand endless spending to reduce endless poverty and Republicans demand endless tax cuts to stimulate endless lousy economic growth. 

 Bessent’s political turn in GOP speech tests his bond-market credibility

... His speech comes against the backdrop of the Treasury Department on Wednesday saying it would buy back as much as $6 billion in long-term Treasury debt this week, with a cap of at least $4 billion in operations later this year. The department began the buyback program in 2024 to solve a well-documented problem where trading can be thin for some long-term debt. ... 

10Y yield at this hour is 4.92%.

20Y is 5.36%.

30Y is 5.351%.

And 2Y is at 4.514%, a 52-week high like the rest. 

This blatant political interference with the full faith and credit of the United States by the president should be condemned by everyone

 Trump doubles down on threat to halt trade with top partners unless Fed cuts rates

Trump is too stupid to take the win handed to him by +162k payrolls in August

  New York Fed’s Williams says yield surge due to strong economic prospects

Analysis: Lower Treasury yields could require a weaker economy. Trump won’t fix them 

... The rise in real yields is “more of a reflection of the strength of the economy,” New York Federal Reserve President John Williams told CNBC Wednesday. Some people want to read the rise in yields as dragging on the economy, but that logic is backward, he said. 

“It’s not really about financial conditions affecting the economy. It’s more about the economy affecting financial conditions,” Williams said.  

The flip side of Williams’ analysis is that it may take an economic slowdown for borrowing costs to cool. But that isn’t a solution anyone would want to root for.

 

Mad King Ludwig blows another gasket

 Trump tells Fed to slash rates or he’ll end trade with countries with U.S. surpluses

If ever an act deserved the hook, this is it.

 

 

 

The nerve of these people

The rate cut in September 2024 was the real disaster because inflation was not licked, and yields now have simply retested their highs after some hopeful but ultimately failed signs of spending discipline around DOGE and of increased revenue from tariffs.   

The failure to win in the Persian Gulf just compounded the inflation problem, restoring the status quo ante, and then some. 

The Fed is the one needing the help, but it isn't going to get it from a spendthrift Congress and reckless executive branch. 

 Vance says Fed should lower interest rates: ‘Would be nice to have some help’ 

 

Experts fancy bond yields are simply normalizing higher, but yields across the board have risen in response to the oil war since March

 

New Fed Chair Kevin Warsh says the Fed has no tolerance for high inflation, except for 82% of the time since 1965 when it's been above 2%

The Fed has met its goal of keeping inflation below 2% in only eleven of the last sixty years, which I'm sure was just an accident.

 

Fed Chair Kevin Warsh, whose wealth is his wife's, peddles the myth that the Fed is in control

This country eats, drinks, and sleeps inflation in the post-war . . . at 3.4% since 1948.

It's the cover for the haves to rob the have-nots. The Fed's job is to keep it going, just at a lower level than the 4.4% of the last six years, while telling you that they work for you when they actually work for the banks and the corporations.

From 1871 to 1948 the inflation rate was 0.8%, for most of which time we had sound money . . . until they confiscated it in 1934.

The only true words below are "We don't know". 

 

 Warsh promises inflation will be a ‘thing of the past,’ cites benefits of AI investment boom

... "if we get policy right — and we will — the inflation surge of the last five years will be a thing of the past."

... "While monthly price fluctuations are inevitable — especially in an unsettled world — underlying inflation over longer time horizons is determined largely by monetary policy," he said. 

... "We don’t know the extent to which the economy will benefit from the AI buildout," he added. "Yet it seems inevitable that what is now called ‘AI investment’ will soon be called just ‘investment.’"

Warsh previously has said he expects an AI productivity boom will prove disinflationary — a premise challenged by some economists as well as his fellow Fed policymakers. ...                          

 

Gee, I hope it's not this disinflationary:

 

 

The homeownership rate soared to 68.8% in 2006 after nearly twenty years of Alan Greenspan at the Fed

 The rate when he began as Fed chairman was 64% in 1987, and again in 1990 and 1994, before taking off during the Clinton-Gingrich era.

Supporting the high homeownership rate was full time employment on an average annual basis north of 50% of population for twenty-three consecutive years 1986-2008. 

We call it The Lost World. 

 

Core pce inflation remained high but falling during Greenspan's first seven years, but stayed below the trend he helped to create for the remaining thirteen

PCEPILFE fell to 2.23% yoy in 1994 and as low as 1.27% by 1998 even as the Fed Funds Effective Rate (DFF) averaged 5.49% for four years 1995-1998.

Greenspan's observed "irrational exuberance" in stocks certainly wasn't caused by low interest rate policy. By today's standards his policy was hawkish even as the market formed a bubble.

His career core pce inflation performance averaged 2.46% yoy.  

It is difficult to imagine today's world being at all patient enough to tolerate Alan Greenspan, especially the Alan Greenspan of 1987-1990 when DFF averaged 7.89%.

He would be run out of town like Ben Bernanke and Jerome Powell, neither of whom arguably were in office long enough to really judge fairly by comparison with Alan Greenspan and both of whom were shabbily treated by Obama and Trump.

 

 

The Maestro is dead, long live The Maestro

 

 Greenspan had the main ideas right:

Low inflation over full employment, because inflation is the worst tax on the people;

And broad property ownership as the foundation supporting the American economy and securing the consent of the governed.

During his nearly 20-year tenure, the Federal Funds Effective Rate averaged 4.87%. 

This is a really good look at Greenspan's career from Marty Steinberg at CNBC. It is one of the best reads I've had at CNBC in a long time. 

 Alan Greenspan, former chairman of the Fed, dies at age 100

... Throughout, he focused on fighting inflation over promoting full employment. His supporters say he presided over the longest economic expansion in U.S. history, but critics said Greenspan’s low interest rate policies set the stage for the housing bubble that burst into the Great Recession a year after his successor, Ben Bernanke, took the Fed helm.

... in his best-selling memoir “The Age of Turbulence,” he defended the low-rate policy, which encouraged people to buy homes: “I believed then, as now, that the benefits of broadened homeownership are worth the risk. Protection of property rights, so critical to a market economy, requires a critical mass of owners to sustain political support.” ... 

Markets to Warsh: Welcome to the party, pal

Do you think the markets care much about the Fed lol?

Ten articles on the front page right now at CNBC:

 

Warsh experiences worst ‘Fed day’ S&P 500 performance for a new chair since 1994 

Chairman Warsh abstains from giving rate forecast as several members signal a hike in 2026

2-year Treasury yield rockets higher as many Fed officials signal possible hike this year

Chairman Warsh drastically alters Fed rate statement. Here’s what’s changed

Fed holds interest rates steady: Here’s what that means for your borrowing and savings rates

Fed holds rates steady, pares down statement to remove cutting bias

Fed meeting recap: Warsh announces task forces to overhaul major Federal Reserve operations

Jeffrey Gundlach says Fed’s Warsh is not going to be the ‘easy money’ chairman many hoped for 

The market didn’t like what it heard from the Fed and its new leader Kevin Warsh

Five big takeaways from Kevin Warsh’s first meeting as Fed chairman

 

 

Everything sold off today

Stocks were down across the board, with the NASD 100 notably down 4.77%. The equal weight S&P 500 is down 0.52% month to date.

The Tech sector was down the most on the day, 5.78%.

The Consumer Staples sector was up the most on the day, 1.64%, which looks defensive against a possible coming recession. The Utilities sector was up half that.

The U.S. 10Y yield rose to 4.55%, and the 20Y and 30Y yields rose above 5.00. YTD return for VUSUX is now down 0.85%.

Oil retreated 3%.

Metals were down across the board, silver down over 8%.

Crypto was down across the board, too, with Bitcoin falling below $60k.

But DXY climbed! +0.658 to 100.071.

The theory is investors are upset that today's "strong" jobs numbers (the 70k hospitality hires is probably World Cup related, a one off, so forget that) indicate easy money from the Fed is now absolutely out of the question, and maybe even a rate increase is coming because the economy is running too hot, which is silly with 1Q GDP at 1.6% annualized. CNBC called that "solid" lol.

Jokers say everyone's just raising cash to buy overpriced SpaceX in its IPO next week.

Investors are taking profits ahead of SpaceX IPO, says Capital Wealth’s Kevin Simpson

SpaceX is worth less than half of its $1.75 trillion IPO target, Morningstar says

Former Fed Chair Jerome Powell accepts Profile in Courage Award

 Fed’s Powell warns Trump’s political ‘stress test’ will wreck public trust in central bank

... “If any administration finds a ​way to remove Fed officials ​over policy differences, then ⁠future administrations will do so as well,” Powell said while accepting the John F. Kennedy Profile in Courage Award. “The public would lose faith that the central bank will make decisions based only on what’s best for all Americans.” ... 

Powell is still Fed chair