- The Federal Reserve's September 16 meeting is being treated by market participants as a credibility test with bond investors rather than a routine policy update.
- If the Fed declines to raise interest rates at the meeting, investors are likely to raise their inflation forecasts, which would inject new turmoil into the government bond market.
- The transmission channel runs from the rate decision to inflation expectations to Treasury pricing, making duration-sensitive assets the primary exposure into the announcement.
Quotes
“If the Fed opts against raising interest rates on Wednesday, investors will probably increase their forecasts for inflation, injecting new turmoil into the government bond market.”