Executive Summary
- The Fed hiked. On September 16 the Fed raised the federal funds target range by 25 basis points to 3.75%–4.00%, by a unanimous 12–0 vote. Chair Warsh described the move as removing a dose of accommodation.
- A measured path, in our view. The median projection has the federal funds rate at 4.1% at year-end 2026 and 2027, which in our view points to a measured policy path rather than an aggressive, multi-year tightening cycle.
- Growth is resilient; inflation is not yet at target. The Fed raised its 2026 growth forecast to 2.3% and lowered its unemployment projection to 4.1%, while median 2026 personal consumption expenditures (PCE) inflation is projected at 3.7% (3.4% core), well above the 2% target.
- Oil is the swing factor. In our view, oil prices may be the most important variable for inflation, and rate hikes have little direct effect on Middle Eastern oil supply.
- October is data-sensitive. August PCE came in at 3.4% (3.0% core), and softer inflation data gives the Fed more flexibility, but it does not eliminate the possibility of another hike this year.
- Treasury yields have risen sharply. In our view, the speed of the move is more concerning than the level. Uncertainty around the rate outlook supports considering a range of duration exposures, and appropriate positioning depends on an investor’s objectives, liquidity needs and risk tolerance.
- AI pacing is now a market issue. The debate sparked by Dario Amodei’s September 12 essay touches on capital requirements and competitive dynamics across the AI investment cycle, and the investment implications will depend on how any measures are designed.
- What we are watching in October: Rates, earnings season, Middle East de-escalation, AI capital spending and the midterm elections.
“We removed a dose of accommodation.”
That is how Fed Chair Kevin Warsh characterized the Federal Reserve’s 25-basis-point rate hike on September 16, bringing the federal funds target range to 3.75%–4.00%. The unanimous 12–0 vote signaled a unified Federal Reserve and marked the first rate hike since 2023.1
The move was hardly a surprise. Chair Warsh had emphasized inflation risks and the need to restore price stability in his Jackson Hole speech.2 In our view, the September decision was consistent with that emphasis, and failing to raise rates would have been difficult to reconcile with the Fed’s stated commitment to price stability and institutional credibility. The Fed’s “dot plot” is a useful reference point.
The dot plot is a chart, published quarterly, that shows how participants in the Federal Open Market Committee (FOMC)—the Fed’s top policymakers, including nonvoting regional Reserve Bank presidents—expect short-term interest rates to change over the next few years. Each dot represents the anonymous projection of one participant, based on their read of the economy and the outcomes they consider most likely. Eighteen participants submitted projections in September; Chair Warsh did not submit a projection.
The September median projection puts the federal funds rate at 4.1% at year-end 2026 and 2027, followed by 3.9% in 2028 and 3.6% in 2029, with a longer-run estimate of 3.2%. In our view, this points to a measured policy path rather than an aggressive, multi-year tightening cycle. These projections reflect individual participants’ assessments and are not a commitment to future policy.3
Warsh said he was “hard pressed” to describe financial conditions as restrictive and characterized the move as removing “a dose of accommodation.” Inflation remains concerning, and geopolitical risks are elevated. In our view, the move withdraws some prior accommodation; it does not, by itself, establish the scale or duration of future tightening.4
The FOMC described economic activity as expanding at a solid pace, with resilient domestic spending, strong productivity growth and robust capital investment. In our view, the resilient growth backdrop gives the Fed room to tighten, although higher borrowing costs could still slow activity and increase potential for an economic slowdown.5
At the same time, inflation remains elevated. The Fed’s September projections put median 2026 personal consumption expenditures (PCE) inflation at 3.7% and core PCE inflation at 3.4%, well above the Fed’s 2% target.6
The economy, however, is far from faltering. The labor market remains resilient, AI-related investment remains strong, and consumer demand continues to hold up. The FOMC raised its median real GDP growth forecast for 2026 to 2.3% from 2.2% in June, and for 2027 to 2.4% from 2.3%. The 2028 forecast is unchanged at 2.2%.7
The labor market outlook was similarly constructive. The median unemployment-rate projection was lowered to 4.1% for each of 2026, 2027 and 2028, from 4.3%, 4.3% and 4.2% previously. The longer-run unemployment estimate remains 4.2%.8
The bottom line
Ultimately, oil prices may prove to be the most important variable for the inflation outlook. Fed rate hikes have little direct impact on Middle Eastern oil supply or traffic through the Strait of Hormuz.
That leaves the Fed with a difficult balancing act. Additional tightening becomes more likely if elevated energy prices begin feeding into broader inflation expectations or if underlying demand remains strong. Conversely, the Fed will need to be mindful that higher rates may eventually weigh more heavily on housing and consumer credit—or begin to curb AI-related borrowing and investment, which has become an important pillar of economic growth.
The important distinction, in our view, is that the Fed is tightening policy against a resilient economy rather than responding to an economy that is already weakening.
October meeting
The probability of an October rate hike has fluctuated significantly and remains highly sensitive to incoming data.
August PCE data, released September 30, came in below expectations. Core PCE increased 3.0% year over year, versus a 3.3% consensus, while headline PCE increased 3.4% versus a 3.7% consensus, partly reflecting the BEA’s annual revisions to PCE data. Market pricing implied a roughly 38% probability of an October hike as of September 30, versus roughly 70% one week earlier.9
The softer inflation data gives the Fed more flexibility, but it does not eliminate the possibility of another hike later this year. Inflation remains well above the Fed’s 2% objective, while the economy continues to show considerable resilience.
Bond market
One of the more notable developments has been the move in Treasury yields from the day before Chair Warsh’s August 28 Jackson Hole speech through September 30. The greatest adjustment has occurred at the front end of the curve, with the 2-year Treasury yield rising approximately 66 basis points, compared with roughly 61 basis points for the 10-year and 44 basis points for the 30-year.10 The rise in Treasury yields is consistent with a reassessment of the policy outlook, although economic strength, inflation expectations, term premiums and competition for capital may also be contributing. The front end of the curve, where expectations for additional Fed tightening are reflected most directly, has moved the most.
Despite the sharp rise in yields, their absolute level is not necessarily the primary concern. The 10-year Treasury yielded approximately 5.28% on September 30, versus a long-term average of roughly 5.79%,11 while the 30-year was around 5.63%, compared with a long-term average of approximately 6.12%.12
What concerns us more is the speed of the move. Rapid increases in rates can create dislocations well before yields reach historically extreme levels, particularly for leveraged borrowers, housing and other interest-rate-sensitive areas of the economy and financial system.
In our view, uncertainty around the rate outlook supports considering a range of duration exposures rather than relying on a single directional outcome. Appropriate positioning depends on an investor’s objectives, liquidity needs, and risk tolerance.
A striking example is the 30-year Treasury issued during the COVID crisis—the so-called “COVID bond” (CUSIP 912810SN9). Issued in May 2020 with a 1.25% coupon, the bond was quoted at approximately $42.60 per $100 of face value as of September 30, 2026.13
It illustrates the duration risk investors assume when purchasing long-dated bonds at historically low yields—and reminds us that Treasury credit quality does not eliminate interest-rate risk.
Skynet
Skynet is the fictional artificial-intelligence defense system that becomes self-aware and ultimately turns against humanity, propelling the Terminator film franchise. (For the record, only the first two in the series are worth watching.)
In a case of life imitating art, several leaders building today’s frontier AI systems have recently renewed their warnings about the risks of the technology itself.
The debate intensified following a September 12 essay by Anthropic CEO Dario Amodei titled “We Must Pace the Frontier.” Amodei argued that AI companies should slow the pace of capability development to give society more time to address potential risks.14
His proposal included independent evaluators with access to AI systems, greater coordination among AI companies around safety standards, and international cooperation to address AI-related risks.
OpenAI CEO Sam Altman subsequently expressed support for independent evaluators,15 and Microsoft CEO Satya Nadella emphasized deliberate pacing in pre-release R&D and testing, including outside evaluation.16
There is, however, another side to this debate.
In our view, slower industry-wide development could affect capital requirements and competitive dynamics, potentially benefiting some established firms. That possibility does not establish the motives behind any company’s safety proposals. Amodei’s essay emphasizes safety and verification and also calls for government-enabled coordination, including a narrow antitrust waiver for certain safety discussions. The investment implications would depend on how any measures are designed and implemented.
The debate now extends well beyond Silicon Valley. Technology executives, policymakers and even Pope Leo XIV (in a May 25 encyclical) have weighed in on the appropriate pace of AI development and regulation.17
The debate also touches on the hyperscalers financing AI infrastructure, semiconductor companies supplying the necessary hardware, data-center operators, utilities providing the required power, and the associated business-investment cycle.
The question, in our view, is no longer simply how quickly AI capabilities will advance. It is also how much capital the industry will require, how long the current investment cycle can continue, and whether regulation ultimately accelerates, slows or redirects that spending.
What we are watching in October
- Rates: Does the Fed continue tightening, or does moderating inflation allow it to pause?
- Earnings season: Can earnings growth and forward guidance continue to support current equity valuations?
- Middle East de-escalation: Could improved oil flows provide meaningful disinflationary relief? Possibly; however, we view a rapid resolution as a low-probability event.
- AI capital spending: Can hyperscaler and AI infrastructure spending continue at its current pace, and are the economic benefits broadening beyond technology?
- Midterm elections: What are the potential implications for fiscal policy and regulation?
“Last” generally shows the price-index level; DAX and Bovespa are native total-return indices. Percentage figures use total-return series for rows marked “TR” and price-return series for rows marked “PR.” TR includes reinvested distributions; PR excludes distributions. The 52-week range uses daily closing levels of the displayed index.
Futures rows show generic front-month price changes. BCOM percentage figures use Bloomberg Commodity total-return series. These measures are not interchangeable and 5 do not represent the return an investor would necessarily achieve. Do NOT use the word 'spot' for BCOM levels.
Indices are unmanaged, do not reflect the deduction of fees, expenses or taxes, and cannot be invested in directly. “TR” denotes a total-return series, which includes reinvested dividends and other distributions; “PR” denotes a price-return series, which excludes them. Index and commodity figures are shown for illustration and are not the returns of any investment.
Sources
1 Federal Reserve FOMC statement, September 16, 2026: https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm
2Transcript of Chairman Warsh’s Press Conference, September 16, 2026: https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20260916.pdf
3Summary of Economic Projections, September 16, 2026: https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20260916.htm
4Transcript of Chairman Warsh’s Press Conference, September 16, 2026 (https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20260916.pdf)
5Federal Reserve FOMC statement, September 16, 2026: https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm
6Summary of Economic Projections, September 16, 2026: https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20260916.htm
7Summary of Economic Projections, September 16, 2026: https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20260916.htm
8Summary of Economic Projections, September 16, 2026: https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20260916.htm
9https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html, September 30, 2026; PCE consensus: LSEG poll via Fox Business, September 30, 2026 (https://www.foxbusiness.com/economy/august-2026-pce-inflation); September 23 hike odds: CNBC, September 23, 2026 (https://www.cnbc.com/2026/09/23/market-sees-next-fed-hike-in-october-following-barr-comments-hot-inflation.html)
10CNBC, August 27, 2026 (intraday observations: 2-year 4.232%, 10-year 4.672%, 30-year 5.19%): https://www.cnbc.com/2026/08/27/us-bonds-us10y-jackson-hold.html; Bloomberg, September 30, 2026 (2-year 4.89%, 10-year 5.28%, 30-year 5.63%). Basis-point changes are approximate, calculated from these observations.
11Bloomberg USGG10YR, displayed average over available observations; chart range January 1, 1961–September 30, 2026
12Bloomberg USGG30YR, displayed average over available observations; chart range January 1, 1961–September 30, 2026
13Bloomberg, Sep 30, 2026 (CUSIP 912810SN9, Last Price 42-19¼, Bid Price 42-18)
14https://darioamodei.com/post/we-must-pace-the-frontier
15https://x.com/sama/status/2098811563415150910
16https://x.com/satyanadella/status/2099289319102124449
Disclosures
This commentary is prepared by Farther Finance Advisors, LLC (“Farther”), an SEC-registered investment adviser, for informational and educational purposes only. Registration does not imply a certain level of skill or training. The information does not consider the investment objectives, financial situation, or particular needs of any specific person and should not be relied upon as personalized investment advice. It does not constitute a recommendation, an offer to sell, or a solicitation of an offer to buy any security, financial instrument, or investment strategy, nor does it constitute legal or tax advice. Opinions, forecasts, and market assessments are current as of the date stated and are subject to change without notice. Forecasts and market-implied probabilities are estimates, not guarantees of future events or results, and actual outcomes may differ materially. Market data reflect the observation dates identified in the commentary. Information is derived from sources believed to be reliable, but its accuracy or completeness is not guaranteed.
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Indices are unmanaged, do not reflect the deduction of fees, expenses or taxes, and cannot be invested in directly. “TR” denotes a total-return series, which includes reinvested dividends and other distributions; “PR” denotes a price-return series, which excludes them. Index and commodity figures are shown for illustration and are not the returns of any investment.
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