Tomorrow, September 16th, the Federal Reserve will release its decision at two o’clock Eastern. Kevin Warsh’s press conference follows at two-thirty. Markets are putting roughly 90 percent odds on a quarter-point increase—the first rate hike since 2023. That is an expectation, not a decision already made.
President Trump has been demanding the opposite. Earlier this month he called for the Fed to “LOWER THE RATE.” On Sunday he said the United States “should be paying the lowest interest rate in the world.”
Those demands appeal to a familiar assumption: when the Fed cuts, borrowing gets cheaper. Mortgages get cheaper, equipment loans get cheaper, and the building you’ve been circling for a year starts to pencil again.
I believed a version of that story for longer than I should have. Then September 2024 happened, and the distinction became hard to miss in our work at B:Side Capital.
The Fed cut its policy rate by half a percentage point on September 18th. Prime fell from 8.5 percent to 8 percent the next day. For borrowers with prime-linked variable-rate loans, that created interest savings as their loans reached their contractual adjustment dates.
The other half of the story arrived over the following four months. The ten-year Treasury yield rose from 3.63 percent on September 16th to 4.77 percent on January 10. Freddie Mac’s average thirty-year fixed mortgage rate rose from 6.09 percent the week of the September cut to 7.04 percent by January 16th. Published twenty-five-year SBA 504 effective rates rose from roughly 5.76 percent in September to 6.51 percent in January.
The Fed cut a full percentage point between September and December, yet by January new long-term financing was more expensive. Existing fixed-rate borrowers kept their rates. Prime-linked borrowers saw interest costs fall as their loans reset. Same economy, same stretch of Fed cuts, very different borrowing costs.
The lesson is simple enough to remember and consequential enough to build a balance sheet around: the Fed sets a target for an overnight interest rate. Investors price money across the years beyond it.
The Fed influences that pricing. It does not dictate it.
What a Ten-Year Yield Is Made Of
To understand the difference, it helps to take the ten-year yield apart. Roughly speaking, it reflects three components: the average inflation-adjusted short-term rate investors expect over the coming decade, the inflation they expect over that period, and a term premium.
That first qualification matters. If we start with ordinary nominal short-term rates, expected inflation is already included. Adding inflation again would count it twice.
The term premium is the additional return investors require for holding a long-term bond instead of repeatedly investing in short-term securities. Their money is not literally locked away; they can sell the bond. But if yields have risen, they may have to sell at a loss.
That premium can increase when investors become more concerned about inflation risk, interest-rate uncertainty, or the amount of government debt the market must absorb. It can also fall when investors want the safety of Treasuries. It has sometimes been negative. Uncertainty does not always send it in the same direction.
A quarter-point cut does not subtract a quarter point from a ten-year yield.
Suppose an announcement causes investors to expect short-term rates to be a quarter point lower for one year, with the following nine years unchanged. The simple ten-year average falls by approximately 2.5 basis points. If that change lasts two years, the effect is approximately five basis points, holding everything else constant.
Those are small changes. A rise elsewhere in the yield can outweigh them.
The announcement can also change what investors expect much further out. They might conclude that easier policy today will support stronger growth, permit more persistent inflation, or require tighter policy later. Alternatively, they might see a weakening economy and mark the whole expected path down.
What matters is the change in expectations. A cut that everyone already anticipated may do little when it finally arrives.
This is how the Fed can lower its rate while the ten-year rises. Higher Treasury yields can then put upward pressure on mortgages and other long-term financing. The final loan rate also depends on the lender’s funding costs, the borrower’s credit, collateral, fees, and the spread charged above the relevant benchmark.
The ten-year is a useful reference point. It is not a universal pricing formula.
The Credibility Tax
There is a particular risk I watch when political pressure for easier money meets unresolved inflation.
If investors believe the central bank is becoming less willing to defend price stability, they may demand more compensation to lend for the long term. That can appear in expected inflation, in the anticipated path of future rates, or in the premium investors require for bearing risk.
I think of that as a credibility tax.
It is a description of a possible market response, not a separate number we can read off a screen. We cannot look at a rising ten-year yield and declare that every basis point represents lost confidence in the Fed. Stronger growth, Treasury issuance, changes in overseas demand, and investor positioning can produce similar movements.
The distinction matters because an argument about credibility should be held to the same standard of evidence it asks of the central bank.
When long-term yields rise more than short-term yields, traders call the movement a bear steepener. When short yields fall while long yields rise, a steepening twist is the more precise description. Both widen the gap between the short and long ends. Neither identifies the cause by itself.
We saw a sharp divergence around the July meeting. Between July 28th and July 29th, the two-year Treasury yield fell from 4.26 percent to 4.22 percent, while the thirty-year rose from 5.09 percent to 5.20 percent. The Fed left its policy rate unchanged. The market moved anyway.
On August 13, a thirty-year Treasury auction cleared at 5.216 percent, its highest auction yield since 2001. That established the price investors required at that sale. It did not establish a single explanation for that price.
The warning for borrowers is substantial without making it larger than the evidence: long-term money can become more expensive while the Fed stands still.
What Burns Left Behind
Arthur Burns chaired the Federal Reserve from 1970 to 1978. The Nixon tapes document presidential pressure for expansionary monetary policy ahead of the 1972 election. Policy was expansionary, although historians and economists still debate how much reflected political pressure and how much reflected Burns’s own convictions.
The inflation that followed had several causes. Monetary accommodation mattered. So did oil shocks, fiscal pressures, failed wage and price controls, and mistaken judgments about how much the economy could produce without generating inflation. Reducing that decade to one president leaning on one chairman would make the story simpler and less accurate.
But the failure to sustain restraint had lasting consequences. Once households, businesses, and investors came to expect continuing inflation, bringing it down became more difficult.
On September 30th, 1979, Burns delivered “The Anguish of Central Banking” in Belgrade. He acknowledged that the Fed had possessed the power to stop inflation through sufficiently restrictive policy. He also argued that the institution had been caught in the political and intellectual currents of its time, unwilling to maintain the restraint required.
Six days later, under Paul Volcker, the Fed announced a major change in its operating procedures, placing greater emphasis on controlling reserves and monetary growth. The timing is striking, but Volcker’s policy shift was already being developed. Burns’s lecture should not be treated as the event that suddenly converted him.
Restoring price stability took years. The United States endured recessions in 1980 and 1981–82, and unemployment reached nearly 11 percent late in 1982. Long-term rates remained painfully high along the way: the ten-year Treasury yield averaged 15.32 percent in September 1981. Those yields reflected inflation, expected policy, and risk—not a pure measure of the term premium.
The leadership lesson I draw is that repeated accommodation can make the eventual correction more costly. The people who bear that cost may have had no voice in the decisions that created it.
Why This Meeting Matters
The current inflation picture is mixed, and the mixture matters.
August headline CPI was 3.4 percent above a year earlier, unchanged from July. Gasoline rose 3.9 percent during the month, seasonally adjusted, and the energy index was up 16.3 percent over the year.
Core CPI, which excludes food and energy, improved to 2.4 percent year over year from 2.5 percent in July. But its monthly increase accelerated from 0.2 percent to 0.3 percent. The annual figure improved; the monthly figure did not. These are CPI readings, while the Fed’s 2 percent objective is defined using the separate PCE price index.
At Jackson Hole on August 28th, Warsh placed responsibility for persistent inflation on the central bank and said underlying inflation needed to move toward the objective clearly and fast enough. He also explicitly declined to commit to a particular decision. Three FOMC members had dissented in July because they wanted a quarter-point increase then.
A surprise cut after that would require a persuasive explanation. If investors saw evidence of serious economic weakness, longer-term yields could fall. If they saw accommodation of persistent inflation or political pressure, those yields could rise.
My concern is the second possibility. It is a risk, not a forecast I can honestly present as certainty.
The labor market gives the Fed reasons to be cautious about adding stimulus. August payrolls increased by 162,000 and unemployment held at 4.1 percent. But the preceding twelve months averaged only 31,000 additional jobs per month. One stronger report does not erase the slower trend.
Meanwhile, long-term financing has already become expensive. Freddie Mac’s thirty-year fixed mortgage average was 6.76 percent on September 10. Total federal debt passed $40 trillion in August. The Fed’s July target range remained at the level established by its December 2025 cut.
Borrowers do not need a theory about every movement in the bond market to recognize the practical problem. A stationary policy rate has not meant stationary financing costs.
The Argument for Patience
There is a serious argument against tightening into an energy shock.
Higher fuel costs already squeeze households and businesses. Real average hourly earnings for private-sector employees fell 0.3 percent over the year through August. That figure does not measure median household income, and real average weekly earnings rose 0.3 percent as the workweek lengthened. Still, the hourly measure shows purchasing power under pressure.
The Fed cannot drill for oil. It cannot reopen a shipping route. Higher rates can weaken demand without repairing the supply disruption that pushed prices up.
The comparison with the 1970s also has limits. The United States is now a net energy exporter, although domestic consumers remain exposed to global energy prices. Today’s inflation is far below the double-digit rates of the Great Inflation, and monetary policy operates within a different institutional framework.
Those differences deserve weight. A central bank can reasonably look through a temporary supply shock when it has grounds to believe inflation expectations will remain anchored. It must also consider the risk that the shock spreads into broader prices and expectations.
Credibility gives policymakers room to exercise that judgment. Preserving it requires decisions the evidence can support, including a willingness to explain uncertainty.
I do not know what the long end will do if Warsh hikes tomorrow. A hike could reassure investors about inflation control. It could reinforce expectations of further tightening. It could produce little movement because investors already expected it.
The same uncertainty applies to a hold or a cut. The announcement matters through what it changes in the market’s understanding of the years ahead.
That is why a business plan should survive more than one interpretation of a press conference.
Know Which Rate You Pay
Start with the obligations already on your balance sheet.
For each one, write down the current rate, whether it is fixed or variable, the benchmark if it floats, the spread above that benchmark, any floor or cap, the next reset date, and the maturity date.
Many variable-rate 7(a) loans and business lines use prime. Other loans use different benchmarks, including SOFR. Even when prime changes promptly after a Fed decision, a borrower’s rate adjusts according to the note.
For twenty- and twenty-five-year SBA 504 financing, the SBA-backed debenture portion receives a fixed rate through a monthly sale, priced relative to the ten-year Treasury. The accompanying bank loan has separate terms. An existing fixed debenture does not reset because the next month’s published rate changes.
Fixed mortgage rates are influenced by mortgage-backed securities and Treasury markets. Equipment loans and corporate borrowing reflect their own funding benchmarks and credit spreads. The ten-year helps explain the environment, but your lender’s actual terms determine your payment.
If your debt is fixed through maturity, tomorrow’s decision does not change that contracted interest rate. Your exposure lies in new borrowing, a future reset, or refinancing. If your debt floats, a policy change may reach your cash flow sooner.
That distinction is more useful than a blanket claim that a hike hurts or a cut helps.
Stop Underwriting the Rescue
In May, I suggested modeling a sustained 7.5 percent borrowing cost for the next two years. I would keep that scenario in the model, with a clarification: it is a planning assumption, not a universal market rate or a forecast that every borrower will pay the same price.
Your base case should start with current lender quotes for your actual credit, collateral, and loan structure. If those quotes are above 7.5 percent, the model needs to reflect that. Then test what happens if rates stay elevated, refinancing comes later, or cash flow weakens.
If a maturity is approaching inside eighteen months, talk to your lender this month. Compare refinancing terms, extension options, prepayment costs, and the cost of fixing a rate. Understand what can be committed today and what remains subject to market pricing.
A rate lock can reduce uncertainty. It also has terms and costs. The objective is to protect a viable business from a financing deadline it cannot afford to miss.
Waiting for a cut to save the deal is a financing assumption. Put it in the model where everyone can see it, alongside the case in which the cut arrives and your borrowing cost does not fall.
Watch the curve, too. The two-year and thirty-year yields can show whether expectations for near-term policy and long-term money are moving together. Ten-year TIPS breakeven inflation can add information, but it includes risk and liquidity effects as well as expected inflation.
Treasury auctions offer another piece of evidence. An auction that clears at a higher yield than the market expected immediately beforehand has “tailed,” an indication that demand was weaker than anticipated at that price. One auction is not a verdict on the central bank. Repeated patterns deserve attention.
Read those signals together. Then compare them with the financing terms your business can actually obtain.
Know Who Sets the Terms
Dickens gave Pip a fortune and let him spend much of Great Expectations certain he knew who had provided it. He was wrong about his benefactor, and the discovery changed his understanding of the life he had built.
Borrowers can make a related mistake. They see the committee in Washington and assume it determines the price of their next decade of financing.
The Fed is powerful. Its decisions shape markets, spending, employment, and inflation. But the rate on your next loan also reflects investors’ expectations, the lender’s economics, and your own ability to repay.
A cut cannot guarantee a lower long-term rate. A hike cannot tell you, by itself, what your next mortgage or commercial property loan will cost.
The practical response is within reach: know the terms you have signed, preserve cash, prepare early for maturity dates, and build assumptions your business can survive.
None of that requires predicting Kevin Warsh. It requires understanding the obligations you carry and retaining enough room to act when conditions change.
For leaders in a crisis era, that is also a question of conduct. Pressure makes convenient explanations attractive. Institutions survive when the people responsible for them can distinguish an explanation from a justification—and accept the cost of a decision they can defend.
That is the warning I take from Burns. In the language of The Fourth Turning Leader, it is the danger at the heart of the Seneca mode: reasoning that becomes so accommodating that it protects the leader from confronting the consequences of his own choices.
That tension is explored in Honor Under Pressure, Book One of The Fourth Turning Leader series. The framework and practical resources for leadership when trust, authority, and institutional continuity are at stake are available at The Fourth Turning Leader.