By Rick Schwerd |
Our investment team remains committed to sharing updates and market insights to keep you informed. Please look for
our next update on October 2.
Fed Raises Rates
In its meeting this week, the Federal Open Market Committee voted unanimously (12–0) to raise the benchmark
federal funds rate by a quarter point to a target range of 3.75 percent to 4.00 percent, marking the Federal
Reserve's first rate hike in three years.
In his post-meeting press conference, Fed Chairman Kevin Warsh underscored the central bank's unwavering focus on its
inflation mandate, declaring that "inflation is too high and has been for too long" and stressing that the Fed must
maintain full discipline to return underlying inflation to its 2 percent target. Reaffirming the central bank's
operational independence in response to political pressure for lower borrowing costs, Warsh emphasized that the
committee needed to "stay in our lane" and that they are committed to restoring price stability through
data-dependent action.
Bond Yields Rise
U.S. Treasuries across the yield curve experienced a sharp move higher over the last month, pushing short- and
intermediate-term benchmarks to multiyear highs. The increase in rates has been driven primarily by the continuing
escalation in the Iran War that pushed crude oil past $100 per barrel, which fanned inflation fears.
As of late Wednesday, the two-year yield increased approximately 0.8 percent over the last month to around 4.70
percent. Further out the curve over the same time frame, mounting concerns over expanding U.S. fiscal deficits and
heavy Treasury issuance pushed the 5-year yield up roughly 1.2 percent to 4.87 percent, while the benchmark 10-year
yield surged by roughly 1.08 percent to cross the 5.00 percent threshold—its highest level since July 2007.
After initially rising following the Fed meeting late Wednesday, bond yields actually dropped Thursday, back below
pre-Fed meeting levels. Although it may seem counterintuitive, many times following a large increase in rates over a
short period of time, an event like the Fed increasing rates stops the momentum of the yield increases. We’ll
be watching closely to see if rates stabilize or if the yield rise resumes.
Equities Weathering the Storm
While remaining volatile, equities are holding up reasonably well given all the current headwinds. With the rise in
bond yields, oil over $100 per barrel and the seasonally weak time of the year, the S&P 500 sits at 7,636,
approximately 2 percent below its all-time high reached in mid-August. As we mentioned in our last update, the
volatility is likely to persist at least through the midterm elections in November. Oil prices and yields are
expected to hold significant sway over the equity markets, at least until we start to get third-quarter earnings in
mid-October.
Looking Forward
Following this week’s Fed meeting, we are entering a quiet new period for financial markets. As we mentioned,
third-quarter corporate earnings season doesn’t start until mid-October and the next likely market-moving
economic release is likely to be the September labor market report on October 2.
As always, if you have any questions or concerns regarding markets or your financial planning needs, please reach out
to us at (518) 415-4401.
About the Author: With almost three decades of financial industry experience, Rick serves as a
Senior Investment Officer at Arrow Bank. He oversees individual and corporate retirement plans, personal trusts,
investment management accounts, foundations and not‑for‑profit relationships.