Has the Fed Been Making A Mistake?
Benjamin Cowen examines whether the Federal Reserve is making a mistake by refusing to follow the rise in the two-year yield while longer-term yields, inflation, and employment remain elevated. He concludes that the Fed should raise rates, arguing that continued inaction could push long-term yields higher, increase market uncertainty, and worsen pressure on risk assets.
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Benjamin Cowen explains that the Fed directly controls the short end of the yield curve but only indirectly influences long-term yields. He argues that long-term yields can rise even while the federal funds rate is lower if the Fed does not respond to renewed inflation.
Cowen says the two-year yield has been rising since February while the Fed has declined to raise rates, breaking the historical pattern in which the federal funds rate eventually follows the two-year yield.
He argues that inflation is likely to remain sticky because oil is around $92 per barrel and the unemployment rate has been trending down since late 2025.
Cowen contends that political pressure may be preventing the Fed from raising rates, while bond-market investors are challenging efforts to hold down long-term yields through intervention.
Fed Policy And Yields
The host introduces the Fed question, reviews Bitcoin and Treasury yields, and explains why lower policy rates have not brought down long-term borrowing costs.
Two-Year Yield Signal
The host argues that the two-year yield normally leads the Fed funds rate and that the Fed's refusal to follow it is pushing the long end of the curve higher.
Bond Market Revolt
The discussion presents rate hikes or renewed quantitative tightening as the clearest way to restore inflation-fighting credibility and reduce pressure on long-term yields and risk assets.
September Rate Hike Case
The host concludes that the Fed has made a mistake by holding rates steady and should deliver at least one hike as inflation and employment remain firm.
Rate Hikes And Risk Assets
Using the 1997 market reaction, the host argues that a rate hike can signal economic strength while hurting long-duration assets, and warns that rate cuts could reignite inflation.
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