The Fed was bullied into hiking rates. Now it hopes it didn’t royally screw up

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The bond market gave the Federal Reserve an ultimatum: Raise rates, or we will.

So the Fed did the only thing it could do. Backed into a corner by rising Treasury yields and inflation, the central bank boosted its target interest rate Wednesday for the first time since 2023.

Americans have suffered from a persistent inflation problem for five years, and an interest rate hike is a powerful weapon that could help squash it. But it’s a blunt tool that comes with a nasty side effect: It can unintentionally turn the job market into collateral damage.

Still, for Fed Chairman Kevin Warsh & Co., this isn’t any ordinary inflation problem. It’s mainly a result of high energy prices caused by the war with Iran, and as my colleague Matt Egan noted in July: Warsh can’t reopen the Strait of Hormuz .

So the bond market got its wish Wednesday, and the reasonably strong job market and robust consumer spending probably gave the Fed enough room for error.

But the Fed is playing with fire. Raising interest rates risks slowing down the American economy without anything to show for it.

Before the Fed decision, some prominent economists were already on its case.

Goldman Sachs economists suggested in a note to clients this week that the case for a rate hike was “weak,” based on the state of the US economy. They argued the economy wasn’t overheating, demand wasn’t excessive, and the supply shocks fueling inflation – namely high oil and fuel prices – would correct themselves once the war ended.

It’s not that the Iran war and Ukraine’s attacks on Russian diesel refineries are part of the problem; they are the problem – all of it, Goldman’s economists said.

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The Fed typically “looks through” supply shocks because they’re temporary and rate hikes are ineffective at combatting them. And once they fix themselves, the Fed may find that interest rates now are too high, artificially raising borrowing costs for businesses and consumers without actually tackling inflation.

“ The Fed cannot control energy prices,” said Michael Pearce, chief US economist at Oxford Economics. “The economy is solid and can withstand a few rate hikes, but the risk is higher interest rates begin to weaken the labor market.”

Warsh disagrees . Lower prices will benefit consumers, who will spend more and fuel economic growth, he argued.

“I don’t believe that we need to do harm to the labor markets to achieve our objective,” he said in a press briefing Wednesday. “And the job we did today, the job we will continue to do, is to ensure price stability, which can mean that sustainable, durable, economic growth can go on for longer, the economy can be stronger, and as I mentioned before, the least well-off can get the benefits of it.”

Even if the Fed thought the economy wouldn’t benefit long term from rate hikes, its hands were tied.

Warsh has talked a tough game on affordability but, until Wednesday, hadn’t backed it up with any action. That raised fears that the Fed had lost “credibility” – marketspeak for trust that the Fed will follow suit on its dual mandate to keep inflation and unemployment in check.

So bond investors got nervous that an inactive Fed might be late to fix runaway inflation and, in turn, devalue their Treasuries. They demanded even more yield as oil prices crept above $100, and the Fed chairman – who made it his mission to let markets do their thing without his intervention – remained mostly silent.

Treasury yields that have closely followed the Fed funds rate rose out of whack with the central bank’s target rate, effectively daring the Fed into action. The benchmark 10-year Treasury yield hit a 19-year high on Tuesday.

“The Fed was boxed into a corner,” said Chris Zaccarelli, chief investment officer for Northlight Asset Management.

Warsh said the bond market had nothing to do with the Fed’s decision.

“We made this decision today based on our assessment of the situation, based on our assessment of the trajectory for employment, based on our judgment on the strength of the economy,” Warsh said.

“Sometimes the market tries to prejudge our outcomes,” he added. “I will observe market prices and see what they have to say, but today was our decision.”

But if the Fed hadn’t raised rates Wednesday, the bond market probably would have gone haywire, pushing yields significantly higher and causing more pain for borrowers.

“The Fed raised rates today, but the bond market got there first,” said Karen Manna, fixed income strategist at asset management firm Federated Hermes. “In many ways, the bond market has been leading the Fed rather than the other way around.”

The bond market is the ultimate bully. It’s the world’s largest and most important financial market. And whether or not Warsh admits it, it got the last word on Wednesday.

As Democratic political strategist James Carville famously said, “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would want to come back as the bond market. You can intimidate everybody.”

CNN’s Elisabeth Buchwald contributed to this report.

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债券市场向美联储发出最后通牒：要么加息，要么我们就加息。

因此，美联储只能采取唯一可行的措施。在国债收益率和通胀双双上升的压力下，美联储周三自2023年以来首次上调了目标利率。

美国人已经遭受了五年的持续通胀困扰，而加息是抑制通胀的有力武器。但这并非万能，它会带来一个棘手的副作用：它可能会在无意中损害就业市场。

然而，对于美联储主席凯文·沃什及其团队来说，这并非普通的通胀问题。这主要是由于伊朗战争导致能源价格高企造成的，正如我的同事马特·伊根在7月份指出的那样：沃什无法重新开放霍尔木兹海峡。

因此，债券市场周三如愿以偿，而相对强劲的就业市场和旺盛的消费支出可能给了美联储足够的容错空间。

但美联储此举无异于玩火。提高利率可能会拖慢美国经济增长，却没有任何实际效果。

在美联储做出决定之前，一些著名经济学家就已经开始关注此事了。

高盛经济学家本周在一份致客户的报告中指出，根据美国经济现状，加息的理由“并不充分”。他们认为，美国经济并未过热，需求也并非过剩，而推高通胀的供给冲击——即高企的油价和燃料价格——将在战争结束后得到纠正。

高盛的经济学家表示，伊朗战争和乌克兰袭击俄罗斯柴油炼油厂并不是问题的一部分；它们本身就是问题——所有的一切都是问题。

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美联储通常会“忽略”供给冲击，因为这些冲击是暂时的，加息也无法有效应对。而且，一旦供给冲击自行缓解，美联储可能会发现目前的利率过高，人为地提高了企业和消费者的借贷成本，却并未真正抑制通胀。

牛津经济研究院首席美国经济学家迈克尔·皮尔斯表示：“美联储无法控制能源价格。美国经济稳健，可以承受几次加息，但风险在于更高的利率会开始削弱劳动力市场。”

沃什对此持不同意见。他认为，价格下降将使消费者受益，他们会增加支出，从而促进经济增长。

“我不认为我们需要损害劳动力市场才能实现我们的目标，”他在周三的新闻发布会上说。“我们今天所做的工作，以及我们将继续做的工作，是确保物价稳定，这意味着可持续的、持久的经济增长可以持续更长时间，经济可以更加强劲，而且正如我之前提到的，最贫困的人也能从中受益。”

即使美联储认为加息对经济的长期发展没有好处，它也无能为力。

沃什在住房负担能力问题上一直态度强硬，但直到周三才采取实际行动。这引发了人们对美联储“信誉”受损的担忧——市场普遍认为，美联储将不再履行其控制通胀和失业的双重使命。

因此，债券投资者开始担心，美联储的不作为可能会使失控的通胀难以控制，进而导致国债贬值。随着油价攀升至每桶100美元以上，他们要求更高的收益率，而美联储主席——他一直秉持着让市场自行运行、不干预的原则——却几乎保持沉默。

与美联储基金利率密切相关的美国国债收益率已脱离美联储的目标利率，这实际上迫使美联储采取行动。周二，基准10年期美国国债收益率触及19年来的最高点。

“美联储被逼到了墙角，”Northlight Asset Management 的首席投资官克里斯·扎卡雷利 (Chris Zaccarelli) 说。

沃什表示，债券市场与美联储的决定无关。

沃什说：“我们今天做出这个决定，是基于我们对形势的评估，基于我们对就业轨迹的评估，基于我们对经济实力的判断。”

“有时候市场会试图预判我们的结果，”他补充道。“我会观察市场价格，看看它们会如何反应，但今天的决定是我们自己的。”

但如果美联储周三没有加息，债券市场可能会出现混乱，导致收益率大幅上升，给借款人带来更多痛苦。

“美联储今天加息了，但债券市场抢先一步，”资产管理公司Federated Hermes的固定收益策略师凯伦·曼纳表示。“在很多方面，债券市场一直引领着美联储，而不是反过来。”

债券市场才是真正的霸主。它是全球规模最大、最重要的金融市场。不管沃什是否承认，周三的选举结果最终还是被债券市场笑到了最后。

正如民主党政治策略家詹姆斯·卡维尔的名言：“我以前认为，如果真有轮回转世，我希望来世当总统、教皇或者击球率达到0.400的棒球击球手。但现在我更想来世当债券市场。你可以震慑所有人。”

CNN的伊丽莎白·布赫瓦尔德对本报道亦有贡献。