A more hawkish Fed. That was the tone of the FOMC meeting on Wednesday. As expected, the FOMC opted to keep rates unchanged for this month. However, what caught many by surprise was the Fed's future guidance. Twelve out of the nineteen members projected another rate hike in 2023, while the committee reduced its rate cut projection for 2024. These projections caught markets somewhat off guard resulting in 2-year yields going through 5.15% and 10-year yields up through 4.42, about a 10bps jump on both. The prevailing market narrative suggests that the Fed has finished hiking rates, but that rates will remain “higher for longer.”

Market participants point to the lowering inflation trend and the labor market realignment as key factors in another Fed pause at the November meeting. Additionally, Thursday morning economic data saw another soft print on jobless claims, which sent yields higher yet again. The tug-of-war between the markets and the Fed, coupled with increasing discussions about a potential government shutdown in early October, suggests that volatility is likely to persist.