Fed Watch – 10/9/2026

The below transcript is a literal translation of the podcast audio that has been machine generated by Adobe Podcast.

Another rate hike is in the cards. The question now is when? Hi, I’m Lauren Saidel-Baker, and welcome to this October 9th edition of ITR Economics Fed Watch.

Well, the Fed minutes are out from the previous meeting when we did see a rate increase, and it seems clear that Fed officials are focused on inflation. In fact, in those minutes they were unanimous about inflation being elevated, about the fact that that is a problem and a problem that they want to solve. So that tells us another rate hike is coming. The question now, and what we didn’t really see in those minutes is when. When can we expect that next move higher and how many more will we get this year? Well, Fed officials are clearly saying there hasn’t been enough progress made on inflation. So that tells us that we are going to see, I think before the end of this year another 25 basis point move. Will we see it in the next meeting coming up? I don’t think so. I personally think October is probably off the table given last week’s somewhat soft jobs report. Additionally, Fed officials in the minutes seem pretty consolidated on the fact that the rate today is too low to restrain the economy. That’s an important concept. We talk about rates either being accommodative or, as Warsh has been saying, about having these rate hikes remove accommodation. But once we reach that inflection point, we’re not just removing accommodation, but we’re actually looking to restrain this high growth, these triggers for higher inflation. That suggests multiple additional hikes before we’re done with this cycle. My personal opinion is that we’ll see more of those hikes into next year rather than this year. They don’t all have to happen up front. We don’t need to see a really steep path of rate hikes. While we will still get that that restraining effect, again eventually happening, looking for rates to generally climb higher throughout this year and next.

But that brings us to another important point. What does this mean for actual borrowing costs? As we’ve talked about a lot on this show, we can see the Fed move rates. We can see the federal funds rate do one thing, but that doesn’t necessarily directly impact the cost of borrowing for things like mortgages, for our federal government, for your credit card rate. All of those rates are set by the market. Those are supply and demand factors. And one that we tend to follow here at ITR Economics is the US 10-year bond yield. Now that’s an important benchmark. And we are seeing those longer term yields really move higher. We’ve talked about this on previous episodes of this show, so I don’t want to belabor the point. But just to bring us back to what that 10-year yield has done, it’s moved much more than just that 25 basis point hike we saw from the Fed. The 10-year bond yield on August 31st was 4.8%. Fast forward to the end of September, September 30th and it was 5.3%. That is a big move, about 50 basis points higher in just one month. Yes, we saw the start of the rate raising cycle, but that wasn’t a huge surprise. So something else is really going on here. And if you want to delve into exactly what is happening, I would encourage all of you TR [Trends Report] subscribers, head on over to the new executive summary. My colleague Michelle wrote a lot of just incredibly deep and rich content about what drives that 10-year yield. If you’re not a TR subscriber yet and you want to check out that article again, I would highly encourage you to do so. This is really, really important stuff as far as Fed watching goes. We’re going to put a link in the show description with a free trial for Trends Report. So please hop on over there, find out much more about what’s going on with the 10-year.

But just quite simply, if I could paraphrase this for the time that we have today, we usually don’t get too deep into drivers of bond yields just because we can’t cover all of the nuance of a market like this in a quick 7 minute show, but we’ll try to do so today, the cliff notes version at least. Bond yields reflect a lot of things. There’s inflation and inflation expectations, clearly that is a major driver. If I’m loaning out money, I want to know what type of dollars I’ll be paid back in. And my inflation expectations factor into that. We have yes, expected changes in short term interest rates, so what the Fed is doing. We’re definitely getting a signal from the market on that front. And also, things like the term premium.

At this point, we at ITR Economics, we’re also very closely watching things like how much money the government is borrowing. Because as treasuries go, this is a view of the credit worthiness, right? What risk are we taking in loaning money to the US government through that 10-year bond? So, as we look at the interplay, right, the kind of connectedness between these factors and that term premium, it’s important to note, total US debt crossed that $40 trillion mark in mid-August. We knew the debt was rising, right? This is not anything magic about $40 trillion that we wouldn’t have hit with some other lower level. But seeing this move in the wrong direction so substantially, and really so rapidly at the moment to that pace of rise really picking up steam, the debt to GDP ratio is now at about 122%. That is huge. That is the highest it’s been, especially outside of wartime, we can look back to World War II for some similar types of debt to GDP ratios. But from a demand perspective, right I said I’m an economist, supply and demand is a critical part of everything we do here. If that’s the supply of these treasuries coming to market, we also have to look at the demand. Foreign demand for these bonds has gotten so much attention in recent months. We’ve seen the de-dollarization trend, as they’re calling it, places like China, kind of running down on how much US government debt they’re holding, really in favor of things like gold. We see that from other BRICs countries. But overall, what are the other competing investment opportunities, right? Is it equities that seem more attractive than holding this government debt? Are those drawing funds away from the treasury market? These are factors that will be critical as we assess the future path of the bond market, and especially of this 10-year yield.

Again, I’m going to point you to the executive summary in Trends Report this month. If you want more detail on any of these topics, that is going to be a great deep dive read. Hopefully we’ve covered some of the core fundamentals and these are the things that we’ll be watching as we go forward. We hope you’ll do that with us. Stick with us next week right here on ITR Economics Fed Watch.