September was the month when “Fed capitulation” was officially moved to the back burner. Which makes sense. Capitulation requires a deflationary threat extreme enough to justify a major loosening of monetary policy. And so far there’s nothing like that in the headlines. Inflation remains too high, GDP growth is positive and World War III hasn’t started yet. So the under-the-surface stuff like spiking consumer debt and a frozen housing market can, for now, be plausibly ignored.
In fact, as labor unions start to flex their muscles, wage inflation is looking like a clear and present danger. That’s why the Fed’s September meeting concluded with a promise of even higher interest rates this year and few meaningful cuts in 2024.
Neither stocks nor bonds liked this prospect. The 10-year Treasury yield jumped to its highest level since before the Great Recession…