Boockvar’s 2 Cents on the FOMC Statement and Policy Decision
From Peter Boockvar:
Look at it this way, the Fed just took back the rate cut they initiated in December 2025. The question of course from here is whether this is the beginning of more (which I’ve argued it will be not). With geopolitics being such a big driver of the supply driven constraints and price pressures, at the press conference I don’t expect Kevin Warsh to all of a sudden give us some forward guidance on this other than repeat ‘Price stability will be delivered.’ He’s got hands tied with the situation in the Gulf, the US budget deficit relative to GDP of 6% which is pumping an extra $2 trillion into the economy than it’s taking out in taxes and a massive CapEx cycle that he can’t do anything about.
In this unanimous decision, the statement was very brief again with some tweaks to the comments on the economy while repeating that “Economic activity is expanding at a solid pace.” They mentioned that despite the elevated uncertainty “in part, to geopolitical developments, domestic spending has been resilient.” Certainly too, “capital investment is robust.” With the labor market, “Job gains have kept pace with the workforce, and the unemployment rate has changed little.”
On inflation, it was simply this, “Inflation remains elevated” and they took out the reasoning they gave back in July that it reflected “supply shocks that have driven price increases in certain sectors, including energy.” I wonder why that was left out but maybe a signal they think inflation risks are more than just a supply shock.
With respect to Treasury yields in response, I’ll compare today’s rates currently with where they stood at 8:29am est on 9/10 right before the PPI came out, followed the next day with CPI. The 2 yr yield at 4.64% (up 3 bps from 1:59pm est today) compares with 4.47% on 9/10. The 10 yr yield at 4.95% (flat with 1:50pm) is versus 4.88% on 9/10. The 30 yr yield at 5.30% is actually below the 9/10 yield of 5.33%.
Bottom line, so much focus on the Fed of course but I keep believing that the bond market has wrestled control of rates from them and all the Fed is doing is refining policy around the edges. I fully understand the arguments on both sides of the ledger on this on whether they should have hiked or not and don’t believe there was any slam dunk. But it is for this reason that I continue to rely much more on what market participants are saying instead on where it thinks the cost of capital should be set. And right now, that verdict is higher.
Position: None
