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

Federal Reserve Policy & Market Reaction - The Federal Reserve cut rates by 25 basis points, triggering a jump in bond yields as some investors anticipated a more dovish outlook [1][3] - The market is readjusting for a less aggressive rate-cutting cycle, influenced by investors rethinking the Chair's comments [3] - There is a split within the Federal Reserve committee regarding future rate cuts, with differing opinions on the number of cuts for the remainder of the year [2][4][6] - Bank of America Research believes there will be only one more rate cut this year, as they do not foresee enough improvement on the inflation side to justify two cuts [7][8] Economic Indicators & Outlook - The labor market is confusing, but other measures of the economy do not suggest it is falling apart [10][11] - Upward revisions to August payrolls are expected, and the focus may shift back to inflation [10] - The 10-year Treasury yield is expected to move between 42% and 44% [16] Credit Market Dynamics - Credit spreads have tightened to the lowest level since 1998, increasing the importance of careful credit selection [1][26] - The market is experiencing strong liquidity and benign macroeconomic conditions, with low defaults and volatility [29][30] - The majority of supply in the credit market has been refinancing, with no net growth in these markets for the last few years [29] - Leveraged loan maturity walls are no longer a risk, but an opportunity, as much of the maturity wall has been refinanced [36]