Risks to Fed Independence | Real Yield 9/19/2025

Group 1 - The Federal Reserve has cut rates for the first time this year by 25 basis points, leading to a rise in bond yields and the lowest credit spreads since 1998 [1][2][3] - The market is adjusting to a less aggressive rate-cutting cycle, with the two-year yield reflecting this shift [3][4] - There is a split within the Federal Reserve committee regarding future rate cuts, with some members advocating for one or fewer cuts for the remainder of the year [6][7][8] Group 2 - The consensus among economists suggests that there may be only one more rate cut this year, despite the Fed's recent actions [7][8] - The labor market remains a point of confusion, with expectations of upward revisions to payroll data, indicating a stable economy [10][11][12] - Inflation concerns persist, with the Fed's target of 2% being questioned as historical data suggests higher average inflation rates [14][15][17] Group 3 - The credit market is expected to perform well into the fourth quarter, supported by the Fed's rate cuts and a focus on growth [27][28] - There is a notable shift in credit spreads, with expectations of spreads moving into the 60s, despite the Fed's actions [29] - M&A activity is anticipated to pick up, which could create supply in the credit markets, although refinancing remains the primary activity currently [31][32][36]