The aBP Weekly: The Fed Rate Hike Is Here. Now 5% Treasury Yields Are the Market's Next Test
Summary
The Federal Reserve raised interest rates by 25 bps, taking the federal funds target range to 3.75% to 4.00% as policymakers responded to persistent inflation and an economy that continues to show resilience.
The bond market may be an even bigger story than the Fed rate hike. The 10 year Treasury yield reached 5% during the week, increasing borrowing costs and raising the hurdle rate investors use when valuing equities.
The U.S. consumer continues to complicate the monetary policy outlook. August retail sales increased 1.2% MoM and 6.0% YoY, providing further evidence that economic activity remains strong enough to withstand restrictive monetary policy.
Markets proved surprisingly resilient. The Nasdaq gained 0.7% for the week despite higher rates, while the S&P 500 slipped only 0.1%. Strong corporate earnings and continued enthusiasm around technology helped offset pressure from bonds and oil.
