Kevin Hassett questions why the Fed is raising rates, says it is due to an “unusually partisan Fed” and says the “market is worried, too,” about a Fed that is going to be “hiking unwisely”: “When I'm thinking about what future inflation is, then I look at the last three months of core.... When you annualize it, you know what the number is? 2%.... Right now I think that markets believe in future Fed credibility, but I think the argument that I would make if I were a governor is that if core is 2%, then why are we hiking?” “The other thing about the Fed, and you know how long I've been close friends with Kevin Warsh…, he's managing an unusually partisan Fed. That is a hard thing to do, but it can start with [Michael] Barr and Jay [Powell] not resigning. If you go back to 1913, when chairmen, when their term is up, they leave. The same has been true for vice chairs… So why are they sticking around if not to worry about what the future Fed is going to do?” “Geez, it seems like right now the data are saying we are heading in this forward direction and the Fed goes in the other direction, I'm worried about why they did that. I think the market is worried too because if you look today, then a lot of the people who weren't appointed by President Trump are giving speeches over the last couple of days saying we need a lot more hikes. And if they are going to be in control for two or three years, so if the short-term rate goes to 6% because they are hiking unwisely and then they keep it there for two or three years, the two-year rate, because of arbitrage conditions, it's going to be that. And so I think there is still some work to do to restore Fed independence. And I know that that is something that is high on the priority list for Kevin.” Source: Financial Markets Quality Conference at Georgetown's Psaros Center on 9/23:

Richmond Fed President Tom Barkin explained how last week's decision to raise rates followed several developments this summer that made it hard to square a wait-it-out inflation posture with Chairman Kevin Warsh's vow to get inflation back to target. "If inflation's not going to come down relatively quickly, then you have to look in the mirror and say '...maybe we should do something about it.'" The full passage from his remarks at the Economic Club of Washington, D.C.: "The way I think about what happened is [Fed Chairman] Kevin [Warsh] took the job and he made a number of, I think, very profound calls. One of which is inflation's been high for whatever it was at the time, 62 months in a row, and we probably should do something about it. And if you had a conversation, and I had a conversation with a bunch of real estate people on this last night, you could argue two sides of that case. One side is, 'Yeah it's been high, but it's really being driven by oil prices, and tariffs, and the AI build out boom. A lot of these things are going to morph on the other side.' A good example of that would be gas prices, which if you go back to June had come down and were actually in the southern part of my district in the low 3s. And so you're like, 'OK, things are coming back to normal.' Well, what happened over the summer is I think it just got a lot clearer to me and maybe to others that this gas price thing that was going to endure for a while. We had this Canada tariff thing. The tariff thing's going to endure for a while. The AI build out, this costs—Apple and a bunch of the other chip enabled tech providers raise their prices. So that's going into cost. You could add, by the way, healthcare costs, transportation costs, diesel. There's a lot of things you could throw into the cost base. And so if inflation's not going to come down relatively quickly, then you have to look in the mirror and say, 'Inflation looks like it's been here for a while, so maybe we should do something about it.' I think that's what happened."

The 10-year Treasury note yield rose 0.147 percentage point on Wednesday to 5.113%, the highest level since July 2007. It was the largest one-day increase since April 9, 2025, when Trump announced he would pause the Liberation Day tariffs.

Fed governor Michael Barr: the AI boom and tariff- and energy-related price pressures have contributed “upward price pressures.” Given rising inflation risks and receding labor market risks, “we were out of position, and we made an adjustment in the right direction.” “In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion.”

This paper finds that 90% of the observed rise in the 10-year US Treasury since August 2020 has occurred in the three-day window around US payroll reports or speeches by top Fed officials (the chair, vice chair, or Waller), which accounts for just 24% of trading days The paper finds those days are responsible for 81% of the rise in markets' expected average short-term rate over the next 10 years, which means this isn't about investors getting nervous about holding long-term debt and is instead about markets revising their view of short-term rates.

"It would necessarily be painful." Chicago Fed President Austan Goolsbee says the central bank has reached the limit of any ability to wait out supply shocks, which means higher interest rates will have to slow sectors of the economy that may not be driving up prices. He also sees evidence that the AI investment boom is not "staying in its lane," and cites conversations with businesses who see increasing labor-market pressures for AI-adjacent industries.

The preliminary report from the third-party firm hired to conduct Bowman's SVB review is now public. The auditor describes a product that is still in progress, with *three* additional versions still to come. • A second, interim report will be published "later this year" • After that, the final report will be published "in early 2027." • This will be followed a fourth report with recommendations in "Q2" 2027

Fed vice chair Michelle Bowman details the initial findings of the third-party review of the failure of Silicon Valley Bank. She says the report challenges findings that social media amplified the run. She says it clears the 2018 regulatory tailoring law, contradicting the Fed report released by Michael Barr in 2023. She doesn't say whether or when the final report by Starling will be made public.

Trump spent months attacking the Fed for keeping rates too high, but after it raised them Wednesday, he cast himself as having blessed it in a call to Fed Chairman Kevin Warsh in the days before the decision. The truce is the clearest sign yet that Warsh has, for now, reset a relationship in which the White House treated the central bank as an adversary. The risk is that it lasts only until the Fed raises rates again. Trump's account of a hostile committee could leave investors wondering whether Warsh is leading the Fed or being carried along by it. Some observers see a face-saving exercise by Trump while others wonder about a dangerous equilibrium: A White House that actually believes the increase, and any that follow, are being forced on Warsh could invite the administration to attempt to remove officials it thinks are obstructing him. w/@schwartzbWSJ

Kevin Warsh raised rates and gave investors little reason to think it's a one-off. The Fed chairman's language suggests the central bank sees more work ahead, even if its projections show just one more hike. His comment about having "removed a dose of accommodation" is Fed-speak for stimulus, meaning officials don't think rates are restraining the economy even after raising them. He also cited geopolitics as a reason to act. His comment about a change in "our judgment about what is the most likely or least likely" outcome suggests the Fed is no longer treating the energy shock as something to wait out. That led one analyst, BNP's James Egelhof, to suggest that the first hike and the additional 2026 hike penciled into the rate projections is "likely a down payment on what might need to be a much more prolonged policy tightening cycle." President Trump said Wednesday evening that he was standing by the chairman, who he said has “a very tough board" that is politically opposed to him. “I talked to Kevin. I said, ‘You might as well vote with the board because it’s not going to matter." Warsh declined to discuss his conversations with the president but said the choice to raise rates had been “one that we have been preparing for and thinking about” since he arrived at the Fed in May. He called it a “sober,” “serious,” and “responsible” decision.

Two years ago, when the Fed started lowering rates, 10 policymakers thought rates would eventually settle out below 3%, compared to 7 who thought rates would settle out above 3%. Two were right at 3%. Today, just one policymaker wrote down a "long-run" rate projection below 3%, while 11 think it is higher than 3%. Six think it is 3%. While it is usually hard to get worked up about the very-far-out years in the SEP (because it is mostly illustrative, ie., they simply show inflation coming down to 2% and rates converging at the long-run neutral estimate), the projections for 2029, included in today's table, are notable because they show more than half of the 17 people who submitted a projection think rates will stay at or above 3.6% (the level they've been at all year, before this week's increase) to get inflation down to 2%. It underscores how risks to the long-run rate estimate are to the upside.

Warsh offered a narrow description of what Wednesday's rate increase was meant to do. "We removed a dose of accommodation so that financial and credit conditions would be more consistent with our ultimate objectives," he said. That phrasing ordinarily would suggest officials view policy as still easy even after Wednesday's move. Warsh dismissed that interpretation when asked where rates now stand relative to an unobservable setting that economists think neither spurs nor slows growth. He said the academic concept didn’t translate well into the “decisions that we make today.”

Asked in July 2025 whether his urging for Fed rate cuts was shaped by the president who might hire him to lead the central bank, Kevin Warsh said: "There's a time for a bird to change his feathers, and it's with the times. It has nothing to do with this president." Investors now expect the Fed to raise rates this week because of how Warsh has communicated his reading of the economy and because of how events have unfolded as he has done so. The case for raising rates is a measure of how much the outlook—from the war and the AI investment boom, in particular—has shifted since Warsh took over the central bank in May.

An interesting paper on the Fed's dot-plot from the Chicago Fed: When the median SEP projection for the fed-funds rate comes in 25 basis points above what Fed watchers expected, market-implied rates (OIS forwards) move only about 5 basis points on the day. "The market’s partial adjustment is consistent with the public understanding that SEP dot plots are conditional assessments, not firm commitments, and that considerable uncertainty is embedded in them."

An AI boom holding up equities. Prediction markets. Exotic options. A bond market with more government policy activism. The Journal is hiring an editor to lead our Markets team through all of it. It's the coolest seat in financial journalism.