Fed Lifts Rates as Bond Yields Touch Multi-Year Highs and Layoffs Stay Low

Matthew Rubin Chief Investment Officer

 

1. The Federal Reserve raised its benchmark rate for the first time since 2023 and signaled that further tightening is likely this year.¹
2. The 10-year Treasury yield climbed close to 5% at midweek, its highest level since 2007, before easing after the Fed’s announcement.⁴
3. Initial jobless claims fell to 196,000 and continuing claims dropped to their lowest level since January 2024, pointing to limited layoffs.⁵

 

1. Fed Raises Rates and Signals More May Follow

The Federal Reserve raised its benchmark interest rate last week, lifting the target range for the federal funds rate to 3.75% to 4%. The quarter point increase was the first since July 2023, and the decision was unanimous.¹ Markets had widely anticipated the move after several firmer inflation readings, so the larger surprise came from the signals about future policy.

The committee’s updated projections showed that most officials expect at least one more increase before the end of the year, with only two participants penciling in no further change.² Projections for 2027 centered on a range of 4% to 4.25%, though about eight officials looked for higher rates than that.²

Chair Kevin Warsh reinforced that message at his press conference, saying inflation has run above target for an extended period and that policymakers are not yet convinced underlying price pressures are moving toward the goal quickly enough.³ He described the increase as a partial withdrawal of policy support rather than a shift to restrictive settings.³

In our view, the move reflects the start of a measured adjustment rather than an aggressive tightening cycle. That shift should act as a mild headwind to growth without threatening the broader expansion.

2. Bond Yields Reach Highest Level Since 2007 Before Easing

Treasury yields moved higher through the first half of last week, with the 10-year yield trading near 5% on Tuesday, its highest level since 2007.⁴ Several forces have pushed yields up this year, including persistent inflation, steady economic growth, concern about federal deficits, expectations for tighter policy abroad, and heavy issuance from both government and corporate borrowers.

The direction reversed after the Fed’s announcement. By Thursday, the 10-year yield had fallen more than 7 basis points to 4.94%, while the 30-year yield eased to 5.29% and the 2-year note slipped to 4.69%.⁴ One basis point equals 0.01%, and bond prices move in the opposite direction of yields.

Higher starting yields matter for long-term investors. Income is a meaningful part of fixed income returns over multi-year periods, so current levels could improve the return outlook for investment grade bonds in the years ahead. In the near term, though, we believe inflation concerns, heavy supply, and uncertainty about the policy path will keep yields elevated and limit the scope for price gains.

3. Jobless Claims Fall to Lowest Level Since January 2024

Weekly labor data released last week pointed to a job market that continues to hold up well. Initial claims for unemployment insurance fell to 196,000 for the week ending September 12^th.⁵ Economists had expected claims to hold near 206,000.⁶ The four week moving average, which smooths out weekly swings, declined to 203,250.⁵

Continuing claims, which count people already receiving benefits, dropped to 1.73 million for the week ending September 5^th.⁵ That came in below forecasts near 1.77 million6 edging close to numbers last reached in May 2023.⁵ The decline suggests that workers who lose jobs are finding new positions without long gaps.

Taken together, the reports indicate that layoffs remain limited even as hiring has slowed from its earlier pace. Steady employment supports household income and consumer spending, which account for the largest share of economic activity.

The data also give the Fed more room to keep its attention on inflation. If the labor market stays firm, policymakers face less tension between their two objectives as they weigh whether additional rate increases are needed in the months ahead.

Looking Ahead

1. S&P Global Flash U.S. Composite PMI – Wednesday, September 23^rd
2. Weekly Jobless Claims and New Home Sales – Thursday, September 24^th
3. Durable Goods Orders – Friday, September 25^th

Why It Matters

Wednesday’s flash purchasing managers survey will offer the first broad read on business activity since the rate increase, covering both manufacturing and services along with early signals on hiring and input costs. Thursday brings both weekly jobless claims, which will show whether the drop to 196,000 was an outlier or the start of a firmer trend, as well as August new home sales, a direct gauge of how buyers are responding to higher borrowing costs. Friday’s durable goods report tracks orders for long lasting products and serves as a proxy for business investment plans, which tend to react quickly to shifts in the cost of capital. Together the three releases will help investors judge how much the higher rate path is filtering into real activity, and they will shape expectations heading into the Fed’s next policy meeting.

For the period ending 9/18/26.
*Small-cap stocks are represented by the Russell 2000^® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ Federal Reserve Board of Governors, Federal Open Market Committee Statement, September 16, 2026
² Federal Reserve Board of Governors, Summary of Economic Projections, September 16, 2026
³ Federal Reserve Board of Governors, Transcript of Chair Warsh’s Press Conference, September 16, 2026
⁴ MarketWatch — 10-Year Treasury Note (BX:TMUBMUSD10Y); 30-Year Treasury Bond (BX:TMUBMUSD30Y); 2-Year Treasury Note (BX:TMUBMUSD02Y), accessed September 17, 2026
⁵ U.S. Department of Labor, Employment and Training Administration, Unemployment Insurance Weekly Claims News Release, September 17, 2026
⁶ FactSet, Economic Estimates, Median Consensus Forecasts, accessed September 17, 2026

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