For the first time in three years, the Federal Reserve raised rates. A unanimous quarter-point hike lifting the fed funds target to 3.75%–4.00%. Chair Kevin Warsh didn't mince words: inflation trends have "not meaningfully improved."
What's driving the reversal? Two forces colliding: a reintensified energy shock from the Iran war pushing diesel toward record highs, and an AI infrastructure buildout pulling in capital faster than supply can absorb it. Sixteen of eighteen FOMC participants now project at least one more hike this year.
Markets moved fast. The 10-year Treasury yield, already near two-decade highs, pushed above 5%. The 30-year mortgage rate jumped to nearly 7%, up from 6% back in February. Along with this, equities sold off following Warsh's comments that inflation remains "too high."
For fixed income investors, this is a regime worth watching: higher-for-longer real rates, a steepening curve, and investment-grade corporate spreads that will be tested as financial conditions tighten.
We'll keep tracking how this shapes the curve and credit markets in the weeks ahead.
#FixedIncome #FederalReserve #InterestRates #TreasuryYields #FOMC #Macro #BondMarket
Sources: The Wall Street Journal, Federal Reserve
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