David Hay — Haymaker Daily: The Most Reluctant Rate Increase Ever? — Fed Chair Kevin Warsh hikes for the first time in three years (funds 3.75% going in) because the 2-year at 4.67% had "totally disengaged" ~90 bp above it; the 2-year leads the Fed, so if Gundlach is right, "brace… for several more hikes" — unless a severe stock correction changes the calculus overnight (Sep 17 2026)

"Yesterday, as the whole world knows by now, recently installed Fed Chairman Kevin Warsh, handpicked by Donald Trump, raised rates" — "the first tightening by the Fed in three years, despite a roaring stock market and an AI-juiced economy." Hay reads it as a hike made "with extreme reluctance" because "failing to hike would have sent a disturbingly dovish signal": prediction markets had it at 85–90%, and, "of far greater importance, the two-year T-Note had totally disengaged from the federal funds rate" — fed funds 3.75% vs the 2-year at 4.67%, "approximately 0.9% (90 basis points) higher." The 2-year "tends to lead the fed funds rate"; citing "the Bond King, DoubleLine's Jeff Gundlach," that it "does a better job of setting interest rates than does the Fed," Hay concludes "the Fed has a considerable amount of catching up to do… brace themselves for several more hikes." The wildcard: "a sudden and severe correction in stock prices" — after which Trump would "lay the blame squarely on Mr. Warsh's shoulders."

One-line take: a macro-only Daily — no security is named — on the Fed's first hike in three years under new Chair Kevin Warsh. Hay's frame is that the Fed didn't lead, it was dragged by the 2-year: with fed funds at 3.75% and the 2-year at 4.67%, a ~90 bp gap that the Bloomberg 20-year chart shows is "highly unusual" outside the GFC, the market had already priced the tightening and the Fed's choice was hike or look dovish. Because the 2-year has led the funds rate in every cycle since 2006 and (per Gundlach) is "free of political interference," the gap implies several more hikes — a clear extension of the Sep-15 "rates and oil both soaring… cash is definitely not trash" stance and the Sep-14 raise-cash call. The explicit off-ramp is political: a sharp stock correction would change the calculus "virtually overnight," with Trump blaming Warsh — i.e., a Fed put conditioned on pain, not on data. Nothing rowed: the fed funds rate, the 2-year Treasury and the stock market are macro objects; DoubleLine is cited only as Gundlach's firm; no ticker is named or inferred.

1. Key points

The hike — first in three years, under a new chair

"Recently installed Fed Chairman Kevin Warsh, handpicked by Donald Trump, raised rates, an action that will also undoubtedly raise the ire of his commander-in-chief."
"It was the first tightening by the Fed in three years, despite a roaring stock market and an AI-juiced economy."

Why reluctant — the market had already decided

Warsh "is fully aware of the wrath he will incur… It's safe to assume he did so with extreme reluctance and also because he felt he had no other practical option."
"Failing to hike would have sent a disturbingly dovish signal based on pervasive expectations" — "the prediction markets had the odds of a bump in the 85% to 90% range."

The real driver — the 2-year disengaged from fed funds

"The two-year T-Note had totally disengaged from the federal funds rate. Prior to yesterday's increase, the fed funds was at 3.75% versus the two-year Treasury at 4.67%, approximately 0.9% (90 basis points) higher."
Bloomberg chart, Sep 2006 – Sep 2026: "this yawning gap was highly unusual." The 2-year "tends to lead the fed funds rate, other than during the Global Financial Crisis"; "the linkage has been very tight, at least until last year when the T-note began telling the Fed it was falling behind the curve."

The implication — several more hikes

"The Bond King, DoubleLine's Jeff Gundlach, has long opined that the two-year does a better job of setting interest rates than does the Fed (almost certainly because it is free of political interference)."
"If he's right, the Fed has a considerable amount of catching up to do. Accordingly, investors — and the White House/Mar-a-Lago — should brace themselves for several more hikes."

The wildcard — a stock correction

"What could potentially change this calculus, and virtually overnight, is a sudden and severe correction in stock prices."
"If that occurs, it's a high-odds bet that President Trump will lay the blame squarely on Mr. Warsh's shoulders. The new Fed chair may want to hit the gym."

Housekeeping

One Bloomberg chart (2-Year Treasury Yield vs Fed Funds Upper Bound, 2006–2026) described in brackets in the saved text.
No security is named; no ticker is inferred. Signed "The Haymaker Team."

2. In plain English

The Federal Reserve sets one short-term interest rate — the "fed funds" rate that banks charge each other overnight. The market sets everything else, and the two-year Treasury yield is the market's best guess of where that Fed rate will average over the next two years. Normally the two move together, with the two-year a step ahead. Going into this week the Fed's rate was 3.75% while the two-year yielded 4.67% — the market was saying loudly that the Fed was too low.

So the new Fed chair, Kevin Warsh, raised rates for the first time in three years, even though the President who appointed him wants lower rates. Hay's point is that Warsh didn't really have a choice: betting markets expected the hike almost 9-to-1, and skipping it would have looked like the Fed was going soft on inflation. If the bond market is the better guide — as bond investor Jeff Gundlach has long argued, because it isn't under political pressure — the Fed is still behind and more increases are likely.

The one thing that could stop that quickly is a sharp fall in the stock market. If stocks tumble, the President will blame Warsh, and the pressure to stop hiking (or reverse) would be intense. For an investor, that means higher short-term rates are the base case, but the path is hostage to how stocks behave — which fits Hay's recent advice to hold more cash.

Macro viewpoint — no security named (the fed funds rate, the 2-year Treasury and the stock market are discussed as macro objects; DoubleLine is cited only as Gundlach's firm; no ticker is inferred). Summary derived from the paid Haymaker Daily (text in transcript.txt) for personal study. Not investment advice. © Haymaker / David Hay for source material.