Here’s a look at things before the Fed Decision today. 
The market expects Fed to not make a move all the way through June of next year and beyond.
There is a very small bias towards hikes, peaking April of 2027.
This bias changed today from a larger (yet small) bias towards cuts to a bias towards hikes.
Target Rate probabilities for April 2027 on 2026-04-29
We have roughly an 8-basis point move from yesterday to today. That’s about a third of a quarter-point tightening bias.
Q: What happened?
A: Oil
For discussion, please see Trump Says He’s “No More Mr. Nice Guy”, Oil Jumps 5 Percent to $105
An economically illiterate trump warns the markets.
It remains to be seen how much more pain Trump, Iran, or the world will take.
The longer the blockade lasts, the more upward pressure there is on the price of oil, gasoline, diesel, aluminum, fertilizer, and interest rates.
The price of oil is far more important than anything Powell says today.
A physical barrel of oil costs around $150 (per Reuters), not $106. If this situation continues, we are in a different world. It’s a world Trump doesn’t want. If fertilizer and jet fuel become scarce, a lot of people will be hungry, and many flights will be cancelled. Have you seen big fat American when he can’t visit his all you can eat or afford burgers?
Let us just look at the case of some inflation measure meeting the Fed’s 2% objective. What level of funds would be appropriate in that environment? Has the Fed learned that there must be a real cost of money? To me, 100bp over is the minimum spread and with an absolute floor at the 2% level.
In controls engineering there is a simple control method called PID. The error is multiplied by up to 3 different weights. P = proportional. I = integral, D = Differential. By looking at inflation, The Fed the change in the economy, or the D part only. That typically does NOT lead to a controlled output. P is needed to help stabilize the closed loop. The I term would have prevented 5 years of inflation above 2%.
I looked up research papers published by the FED, and they are using graduate level system estimators (algorithms that try to model a system with few observable state). That tells me they SHOULD be cognizant of PID and pole placement methods of control. The should also be aware the Shannon sampling theorem states sampling must be 2x faster than the fastest frequency of interest. The Fed also has to know that two outputs can’t be controlled by a single input unless their linkage never varies with time. This was proven in modern control courses and Linear systems / Matrix math course where the number of equations is less that the number of unknowns.
The FED’s “uncertainty” excuses are only a concern if “temporary” lasts less than 6 months. Then again, if every event that causes a theoretical disturbance is frequent, are they really a disturbance or are they part of something larger with unseen connections?
Hopefully MPOV45v2 can see this and grant an award for most intriguing post of the day.
The Fed really screwed up by not hiking rates today. The 2yr Treasury says the Fed Funds rate should be a quarter point higher, now.
Agree but great time to load up on TLT, maybe sell some calls on it, sit back collect the dividend while chaos reigns.
20 year treasury at 4.998 right now.
Brent at $118.60 and WTI at $106.78. Trump says straight will stay closed so how can you not have inflationary pressures across the board?
The 20 & 30 just shy of 5% almost as if someone is holding the line but I think the line will break.
We’re going to have a cruel summer of high inflation that probably lasts through the end of the year.
Do worry, Trump will find a way to make things even worse.™
We’re inevitably going to get higher inflation in anything petroleum related, which is just about everything.
Gasoline will soon break Biden’s 2022 highs. July 4th will see gas at least $6-$7. It’s already over $6 in CA. Food inflation incoming as well because of disruption to fertilizer supplies and higher transportation costs.
Maybe there’ll be a series of assassination attempts on Trump all summer long to keep people’s minds off inflation and the war? That would do the trick.
We aren’t even addressing shortages. I posted on jet fuel and food above. We have an America that hasn’t experienced shortages. I suffered through the 70’s and, as a geezer, remember the era of shortages well.
The personal savings rate for Feb 2026 is 4%. That doesn’t bode well for the future of interest rates.