Title: Haymaker Daily — The Most Reluctant Rate Increase Ever?
Show: Haymaker (Substack, paid post)
Author: David Hay / The Haymaker Team
Date: 2026-09-17 (SEP 17, 2026 — byline date on the post page)
URL: https://haymaker.substack.com/p/haymaker-daily-270
Length: written post — no timestamps
Note: Written post — no timestamps; text verbatim from the paid post (captured via Stephen's logged-in Chrome session). One chart is not reproduced — its title and legible readings noted in brackets. Disclosures omitted.

Hello, Haymakers:

Yesterday, as the whole world knows by now, 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.

Based on Mr. Warsh’s prior lengthy tenure at the Fed, he is fully aware of the wrath he will incur by making this move. 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. Of far greater importance, 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. As is apparent from the following Bloomberg chart, this yawning gap was highly unusual.

[Chart (Bloomberg): "2-Year Treasury Yield vs. Fed Funds Rate (Sep 2006 – Sep 2026)" — 2-Year Treasury Yield 4.6650 (blue) vs Fed Funds Rate (Upper Bound) 3.7500 (orange dashed). The two-year leads the funds rate through the 2007-08 cuts, the 2015-19 hiking cycle and 2020 cut, and the 2022-23 hikes to 5.50%; the funds rate then steps down to 3.75% while the two-year, after bottoming near 3.4%, climbs to ~4.67% at the right edge — the widest two-year-over-funds gap on the chart outside the GFC era.]

Also evident from the above visual, the two-year tends to lead the fed funds rate, other than during the Global Financial Crisis when the Fed dropped its overnight rate well below the two-year. Since then, 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 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.

However, 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.

The Haymaker Team