Newsletter · · Ashutosh Agarwal

Warsh Hikes 25bp and Signals More Rate Hikes Are Coming - The Fed & the Front End - Week of September 21, 2026

The Fed & the Front End for the week of September 21, 2026. Podcast synthesis on the Fed's unanimous 25bp hike to 3.75%–4.00%, Kevin Warsh's message that policy still isn't restrictive, the gap between the Fed's dots and a market pricing three to four hikes, the 10-year touching 5.01%, and the debate over whether the hike is credible inflation fighting or a policy mistake.

The Fed & the Front End

Week of September 21, 2026: Warsh Hikes 25bp and Signals More Rate Hikes Are Coming

They did it. After three years of no hikes and a summer spent arguing about whether the Federal Reserve would raise interest rates, Kevin Warsh's Fed lifted its policy rate a quarter of a percentage point on Wednesday, September 16, and then spent the press conference making sure nobody mistook it for a one-and-done. The move itself was small and fully expected. The message around it was not. Warsh told the world he does not think money is tight yet, hinted more hikes are coming, and refused to promise anything specific, a combination that first fooled markets into relief and then sent short-term yields jumping. The long end of the bond market, meanwhile, brushed 5% on the 10-year for the first time since 2007. Below is what the people who trade, forecast, and used to set these rates said about it this week, in their own words.

(A quick note on terms. The "front end" means short-dated government bonds, think 2-year Treasuries, which move mostly with what the Fed does. The "long end" means 10- and 30-year bonds, which move more with inflation fears and how much debt the government is selling. The "dot plot" is a chart where each Fed official marks where they think rates should go. "Term premium" is the extra yield investors demand to hold a long bond instead of rolling over short ones.)

TL;DR

  • The Fed hiked 25 basis points to a 3.75%–4.00% range, its first increase since July 2023, on a unanimous vote, and Warsh framed it as "removing a dose of accommodation," saying he'd be "hard pressed to describe broad financial conditions as restrictive." Translation: he thinks policy is still loose, so more hikes are on the table. (At Any Rate, J.P. Morgan)
  • Markets are now pricing in roughly three-to-four total hikes; the Fed's own dots show only one more this year and a hawkish lean into 2027. That gap (market says "more," Fed says "maybe one") is the whole debate. The 2-year yield jumped to about 4.70%–4.73% (highest since mid-2024) and the 10-year closed at 5.01%, a 19-year high, before easing back. (Bloomberg Surveillance, Instant Reaction)
  • The bull-and-bear fight is now "credible inflation fighter" vs. "policy mistake." Bank strategists mostly cheered a disciplined Fed; a loud minority (David Rosenberg, Danielle DiMartino Booth, Chris Whalen) argued Warsh is tightening into a supply shock and a weakening consumer, and will hike the economy into a recession. (RiskReversal Pod, David Rosenberg)

What's new this week

1. The decision: a unanimous hike, and language designed to sting. On The Journal from the Wall Street Journal, the WSJ's Nick Timiraos, the reporter Fed-watchers read most closely, reported Warsh raised rates to 3.75%–4% citing that "inflation is too high and has been for too long," and pledged "the commitment to deliver is strong, unanimous and unambiguous." The vote was 12-0. On At Any Rate, Jay Barry and Amanda Burke, rate strategists at J.P. Morgan, laid out the mechanics: the first hike since July 2023, a summary of projections that "skewed somewhat hawkishly," with the median official now expecting one more hike this year, eight participants penciling in an additional hike for 2027, and the longer-run "neutral" rate nudged up to 3.2% from 3.1%. Warsh, Barry noted, repeated the "removing a dose of accommodation" line several times and said the action shows the Fed "is becoming serious about this," a strong hint this is a start, not a finish.

2. The head-fake: markets read it dovish, then panicked. Because the dot plot only showed one more hike this year and none in 2027, the first market reaction was relief. Then Warsh spoke. On The Julia La Roche Show, Danielle DiMartino Booth of QI Research (a former Dallas Fed advisor) put it plainly: "before the press conference started, because it initially looked like a dovish rate hike, there was only one more rate hike priced in… Markets initially interpreted that as being dovish… until Warsh took to the podium for a record short 29-minute press conference." Her read: "he kind of revealed his dot" even without putting one on the chart. The result: she cited the 2-year Treasury at 4.73% pricing three more hikes, and the 10-year closing at 5.01%. On The Tom Sullivan Show, Mohamed El-Erian flagged the counterintuitive twist: long-term yields actually eased even as the Fed hiked, "because investors believe raising short-term rates can bring long-term rates down," with the 10-year at 5.01% and the 30-year at 5.35% on the day.

3. Warsh's real message: I don't think policy is tight. This is the line that changes everything, and the operators heard it loud. On The Wall Street Skinny, Mike Medeiros, macro strategist at Wellington (a roughly $1.5 trillion asset manager), said Warsh "mentioned it three times… that financial conditions are too loose," and that the Fed "miscalibrated how tight policy is. It hasn't been as tight as they thought." On Monetary Matters, Joseph Wang, a former trader on the New York Fed's own markets desk, called it "a bombshell": "he's just straight up telling you that they don't really feel that they're restrictive… almost no one on the FOMC thinks he's restrictive." Wang also flagged the quieter hawkish tell in the projections: the 2028 median dot rose to 3.9% from 3.4%, "a Fed that is envisioning not just hiking, but holding here for an extended period of time."

4. The politics: Trump attacked, Warsh stiff-armed. On Bloomberg Daybreak, the hike was framed as defying the White House (President Trump posted that it was "time to lower rates now, be a patriot"), with BMO senior economist Jennifer Lee calling the decision "hawkish" given the unanimity and expecting another unanimous vote in December if energy prices stay high. Medeiros was blunt that Trump had nothing to do with it: "cutting rates in this environment would be clinically insane." DiMartino Booth was more skeptical of the "unanimous" badge: she noted four officials still want cuts in 2027 and predicted the family feud would resurface in the Fed speeches to follow.

5. The oil problem sits underneath all of it. Nearly every guest tied the hike to energy. Warsh cited "geopolitical developments"; the guests named the thing directly: oil above $100 a barrel, diesel at record highs, driven by the war around the Strait of Hormuz. On Monetary Matters, Wang explained the Fed's dilemma: central banks are supposed to "look through" one-off supply shocks, but "over the past few years it's just one supply shock after another (pandemic, then Russia-Ukraine, then tariffs, and now Middle East)… five and a half years above 2%," so they feel they can no longer ignore it.

The debate: credible hawk, or policy mistake?

This is a genuine two-sided fight this week, and both sides showed up on podcasts.

The case FOR the hike (mostly the bank and ex-Fed crowd):

  • Rich Clarida, former Fed Vice Chair, on Bloomberg Surveillance, argued the Fed can bring inflation down without a recession ("we saw an example of disinflation without a recession between 2022 and 2024") and thinks the official inflation gauge (core PCE) is overstating the real problem, so the Fed "has less ground to cover than maybe some of the indicators suggest."
  • Matt Lozetti of Deutsche Bank, same show, said the Fed has "started a mild tightening cycle" and expects 75 basis points of tightening in total (the 25 done plus 50 more), pointing to a red-hot growth backdrop: the Atlanta Fed's tracker running at 5.1% annualized and retail sales "stunningly strong."
  • Roger Hallam, Global Head of Rates at Vanguard, on Barron's Live, framed it as "the removal of the insurance cuts" from last year rather than a war on growth, expecting "at least two, possibly three" hikes, and warned that persistent ~$2 trillion deficits plus the AI borrowing binge will keep pushing long-term yields up through a rising term premium.
  • Neil Dutta of Renaissance Macro and Stephanie Roth of Wolfe Research, on Bloomberg Talks, both read it hawkish. Dutta expects "hikes are more likely than not" from pass-through effects in AI, oil and food, while conceding the setup is "not good" for stocks.

The case AGAINST (the "you're making it worse" camp):

  • David Rosenberg of Rosenberg Research, on RiskReversal, called it a "policy mistake": the Fed is "tightening into a supply shock" and a cost increase, "like tightening into a de facto tax increase." His evidence that the labor market isn't hot: wage growth down to 3% year-over-year (a five-year low), labor costs up just 1.4%, and real wages actually shrinking. His response was action, not talk: "I just raised 10% cash last week… I'm going to probably double up on that."
  • Danielle DiMartino Booth of QI Research, on Julia La Roche, said Warsh is "enamored with his narrative," a "Goldilocks" story that can't hold, because when inflation cools it usually signals weakening buying power and coming job losses. She argued the economy is already showing recession scars (long-term unemployed now outnumber job-switchers) and that the consumer is tapped out, with families "substituting down from beef to chicken," gas "a buck twenty above where they were in February."
  • Chris Whalen of Whalen Global Advisors, on Julia La Roche, dismissed the hike as "pretty lame" and "mostly symbolic": "who cares when you have a $2 trillion deficit?" His bigger point: the Fed has been demoted. "The Treasury is the dog. The Fed is the tail." He sees "death and destruction" in housing through 2028 and cracks forming in private credit and insurance.
  • David Zervos of Jefferies, on The Exchange the day before the meeting, put the real odds of a hike closer to "60-40 or 65-35" versus the 96% the market priced, and argued rate hikes are "largely irrelevant" against inflation driven by energy, war and healthcare (costs that don't care about interest rates), while the rate-sensitive part, housing, is already "frozen." (BlackRock's Rick Rieder, in a clip on the same show, agreed a hike "could be a mistake.")

The middle ground on the long end: is the bond sell-off even real? The most contrarian operator voice was Steven Major of Tradition, on Bloomberg Surveillance, who pushed back on the whole "term premium is rising" story: "The term premium hasn't gone up. People have been claiming that it has. It has not gone up… inflation expectations are controlled." He thinks the 10-year, at 5% now, is headed "nearer to 4 than 6" within a year and that this could still be "one and done" with easing to follow. That is the opposite of the JPM and Vanguard view that deficits and AI supply keep pushing long yields structurally higher, a debate worth watching, because it decides whether 5% is a peak or a floor.

The trades in play

Several guests put real trades on the table:

  • Long the long bond. Joseph Wang (Monetary Matters): "I love the long bond." His logic: if the equity bubble deflates, the Fed cuts and money runs to safety, and the 30-year is "where you get the most bang for your buck," with positive carry while you wait. He also flagged 30-year inflation-protected bonds (TIPS) at a 3.1% real yield as "historically quite high."
  • Buy nominal bonds, not TIPS. Steven Major (Tradition) likes the high real yield but warns TIPS get crushed in a risk-off, so he favors regular ("nominal") Treasuries to express the same view.
  • Bet on a flatter curve; avoid banks. Mike Medeiros (Wellington) sees the yield curve "bear-flattening" (short yields rising faster than long ones) continuing, which is bad for banks whose model needs a steeper curve. He also sees the S&P 500 "vulnerable to a correction… of around 10%" by year-end, using the gap between where rates are and where the Taylor rule says they should be (about 200 basis points) as his signal.
  • Own real assets. Alicia Levine (BNY), same Bloomberg segment, has been adding to "real assets: infrastructure, commodities, real estate," arguing we're "back to the future" in a nominal, ~3% inflation world where you need hard assets; on equities she'd "just buy the index" given how dispersed the market has become.
  • Raise cash / de-risk. David Rosenberg (Rosenberg Research) is at 10%+ cash and adding, and floated that the market's August 13 high could prove to be the top.
  • Fade the Fed's dots. J.P. Morgan raised its year-end 10-year forecast to 5.05% (from 4.85%), betting long yields still have upside even with three hikes priced, and citing the 1999–2000 cycle (which delivered 100bp of hikes) as the closest historical map.

Read-throughs

  • Stocks: The bull case isn't dead, but the tailwind is gone. Levine notes the S&P at 19x forward earnings and tech at 21x are "not really expensive" versus 46x in 1999, but everyone agrees hikes pressure valuations and the rate-sensitive corners. On CNBC's Fast Money, RBC's Lori Calvasina set the tripwires: two hikes and 5% 10-year yields are survivable, but above 5.5% or six total hikes "would erode forward equity returns."
  • AI and capex: Medeiros warned the AI capital-spending cycle hits "year four" next year, historically where big investment booms peak, and that a bipartisan regulatory wave against data centers is building, "a lot of headline risk" for 2027 growth. Higher yields also raise the cost of the ~$400 billion in hyperscaler bond issuance Vanguard expects next year, with AI-linked bonds already trading ~30bp cheaper than the rest.
  • Housing and credit: Whalen's warning is the sharpest: home prices correcting into 2028, and private credit as "the fuse" with insurance companies "the bomb" (quoting Jeffrey Gundlach). With mortgage rates above 7%, he sees "real defaults" returning.
  • The Treasury's role: Scott Bessent's bond-buyback program (now running about six operations, versus the four first promised) drew skepticism. J.P. Morgan thinks the buybacks are "putting a cap on things" but won't actually lower rates; Vanguard's Hallam figures six buybacks equal roughly half of long-bond issuance yet still won't offset the structural push toward a steeper curve. The unresolved question, in Whalen's framing: markets now watch the Treasury's borrowing plans more than the Fed.

What changed from last week

Last week's issue landed the day before the meeting, with the debate stuck on how many hikes and a September move ~90% priced. Here's the scorecard now:

  • They hiked, unanimously, 25bp to 3.75%–4.00%, as the market expected, but the tone was more hawkish than the dots alone suggested. The surprise wasn't the action; it was Warsh explicitly saying policy still isn't restrictive.
  • The "how many" question got a split answer. The Fed's dots say roughly one more in 2026 and a lean toward more in 2027; the market says three-to-four total. That divergence is wider than a week ago, not narrower.
  • The "does the Fed still control the long end?" question got a partial, hopeful answer. The 10-year hit 5.01% (a 19-year high) intraday but then fell back below 5%, consistent with El-Erian's point that a credible hike on the short end can pull the long end down. For now, the hawkish-hike-lowers-long-yields thesis is winning the tape, but Steven Major vs. JPM/Vanguard on term premium is the fight that decides whether that holds.
  • The next catalysts: a wave of Fed speakers (DiMartino Booth flagged Bowman and Schmid at opposite poles), the September 30 revision to the core PCE inflation gauge (which several guests expect to be revised down), three jobs reports before the December meeting, and whether Bessent escalates the buybacks.