The Fourth Dissent

Three officials voted to hike. The bond market cast a fourth vote, and it voted harder.

The Setup

The Fed held at 3.50 to 3.75 percent yesterday for a seventh consecutive meeting, and it held in about the most hawkish way available to it. The vote was 9-3. Hammack, Kashkari and Logan all dissented in favour of a hike, which is three officials putting on the record that they think the committee is not tight enough. Warsh spent the press conference saying a version of the same thing, that five-plus years of inflation above target cannot be cured in nine weeks. On paper, that is a committee leaning hard against inflation and telling you so.

The thirty-year closed at 5.20 percent. The last time it closed there was July 12, 2007.

That is the level. The rest of this piece is about the shape, and the shape is what decides whether yesterday repriced inflation or repriced what it costs to lend long. Below the line: the curve split into real yields and inflation compensation, the record that got set doing it, the thing consensus is mislabelling, and the two prints that would tell us we have this wrong.

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