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By Scott McIntyre
Co-Head of Investment Management
HilltopSecurities Asset Management
As widely expected, Fed officials voted to increase the overnight target rate by 25 basis points to a new range of 3.75% to 4.00% in response to persistent inflationary pressure and a bond market demanding accountability. The vote count was unanimous, somewhat of a surprise as a number of committee members had signaled a willingness to hold rates steady in recent weeks. In line with Chair Warsh’s determination to limit forward guidance, the official statement was once again very brief with few changes from July. The most noteworthy addition was the bold statement that “…policy action will support a timelier return to the committee’s 2 percent goal.”
The first update of the Fed’s “dot plot” since April showed policymakers now anticipate one additional increase later this year. Among the 18 members contributing forecasts, only two expect no further tightening for 2026, while four predict 50 bps of increase and 12 expect a quarter point move before year end. One dot is missing, presumably Warsh. The committee’s longer range average forecast ticked up from 3.1% to 3.2%, implying the highest neutral rate in over 10 years.
The committee’s updated summary of economic projections showed a slight increase in both expected GDP growth and future inflation, supporting the higher neutral rate.
The initial market reaction was generally positive with bonds staging a modest rally. The unanswered question going into the post-meeting press conference was whether today’s hike will prove a one-off event, or the first in a series of tightening moves. Although the next FOMC meeting is six weeks away, Warsh continued to insist inflation is still too high, confirming market expectations for at least one more hike. Obviously, this will be validated or dismissed by future events and incoming data, but a one-and-done doesn’t seem to be the base case.
When asked by a reporter how President Trump might see today’s policy shift, Warsh responded by saying “I have nothing for you.” Another reporter asked what had changed since the last meeting that had prompted the committee to act. Warsh pointed to recent economic improvement rather than the surge in oil prices.
Warsh’s press conference (like the official statement) was limited, leaving the markets to fill in the missing pieces. The early rally faded away as Warsh spoke with short bond yields climbing to new cycle highs while stocks retreated.
About Scott McIntyre, CFA
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Scott McIntyre specializes in investment management services and is responsible for the management, oversight and trade supervision of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Scott also provides investment advice and consulting, reviews local government investment policies, formulates overall investment strategies, evaluates account performance and oversees the day-to-day operations. He is a member of the Chartered Financial Analyst (CFA) Institute and a CFA Charterholder, a two-term advisor to the GFOA Treasury and Investment Management (TIM) committee, a Registered Investment Advisor, and holds FINRA Series 7, 24, 63, and 65 licenses.
About Greg Warner, CTP
As HilltopSecurities Asset Management’s Co-Head of Investment Management, Greg Warner specializes in investment management services and is responsible for the management and oversight of more than $30 billion in institutional fixed income assets for HilltopSecurities’ public sector municipal clients. Greg coordinates all client services and portfolio management duties, including security evaluation and portfolio analysis, trading, investment reporting, board presentations, and monitoring of broker-dealer relationships. He is an advisory committee member to the Texas Association of Counties, a member of the Government Treasurers’ Organization of Texas (GTOT), a Registered Investment Advisor, a Certified Treasury Professional (CTP) and holds FINRA Series 7, 63, and 65 licenses.
About Matt Harris, CFA
As HilltopSecurities Asset Management’s Senior Portfolio Advisor, Matt Harris specializes in investment management services for public sector municipal clients. He developed his experience in the banking industry, supporting balance sheet management, interest rate risk analysis, liquidity planning, and investment strategy implementation. At HilltopSecurities, he works closely with clients to develop and implement customized investment strategies, oversees account documentation and reporting, and assists clients with the public funds depository review process, including competitive RFP evaluations. Harris is a member of the CFA Institute and a CFA Charterholder, a Registered Investment Advisor, and holds FINRA Series 7, 63, and 66 licenses.
The paper/commentary was prepared by HilltopSecurities Asset Management (HSAM). It is intended for informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product. Information provided in this paper was obtained from sources that are believed to be reliable; however, it is not guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to any attorney or advisor in any particular circumstances. The statements within constitute the views of HTS and/or HSAM as of the date of the document and may differ from the views of other divisions/departments of Hilltop Securities Inc. and its affiliates. In addition, the views are subject to change without notice. This paper represents historical information only and is not an indication of future performance. Sources available upon request.
HilltopSecurities Asset Management is an SEC-registered investment advisor. Hilltop Securities Inc. is a registered broker-dealer, registered investment adviser and municipal advisor firm that does not provide tax or legal advice. HTS and HSAM are wholly owned subsidiaries of Hilltop Holdings, Inc. (NYSE: HTH) located at 717 N. Harwood St., Suite 3400, Dallas, Texas 75201, (214) 859-1800, 833-4HILLTOP.