Fed Rate Hike: When All You Have is a Hammer...

September 16, 2026

What moron said this?!

That aged as well as a pack-a-day smoker. 

It’s been 1,148 days since the last FOMC rate hike. You remember that day because Barbenheimer was storming movie theaters. Today, the FOMC unanimously voted for a 25bps hike. In response, oil is already heading right back to $60/barrel…

When asked about how the Fed expected a hike to help a supply shock: “We can’t impact any one price, but what we can and will do is ensure those price increases don’t broaden out into second and third order effects.”

I recall asking a Fed economist once why the Fed would hike during a supply shock and he said, “When all you have is a hammer, everything looks like a nail.” Supply shock, meet hammer. Hammer, supply shock.

The 500bps question: are more hikes coming? 

He dodged that one, but here are the anonymous blue dots from each member (except Warsh, who abstained).

Rest of 2026
No more hikes         2
1 more hike              12
2 more hikes            4

2027
4 cuts                         1
2 cuts                         3
No cuts or hikes      6
1 hike                         8

“Today’s action shows we’re serious about this,” when asked about getting back to 2%, which the market is taking as hawkish. The front end is up 6bps as the market prices in higher probability of more hikes. Here are current probabilities before year end (two more meetings to go).

When asked if rates are restrictive now:

• “We would be hard pressed to describe them as restrictive”
• “We removed a dose of accommodation”
  

When asked what changed since the last meeting:

1. Eco data has strengthened
2. Inflation trends have not improved
3. Geopolitics
   

He also added the competition for capital (like AI capex) and higher global yields have contributed to an increase in rates.

Thankfully, everyone who promised the T10 would come down if the Fed hiked was proven right…wait, what’s that? The T10 is actually up a few bps?

Unfortunately, when both rates and oil climb simultaneously we usually end up in a recession, but hey we might get inflation from 3% to 2%!

Here are rates changes since the first strike on Iran.

2yr Treasury + 106bps

5yr Treasury   + 135bps

10yr Treasury + 134bps

I wonder who Trump blames for appointing an apex inflation hawk?