Higher Rates 'Cannot Manufacture' Oil or Reverse Tariffs:...

The Federal Reserve is leaning toward another interest rate hike by year-end, but market strategist James Thorne said the central bank is misdiagnosing an economy that isn’t overheating, while Treasury yields climb to fresh highs.

Fed Is Fighting Overheating That Isn’t There

Thorne, the Chief Market Strategist at Wellington Altus, called the case for a hike “not prudence” but “misdiagnosis.”

“Housing is in recession. Inflation expectations remain anchored,” he said, adding that recent trimmed-mean personal consumption expenditures (PCE) inflation and two-year breakevens are lower than when President Donald Trump took office.

“Where is the overheating?” he asked.

Thorne compared it with September 2024, when the Fed cut rates by 50 basis points with trimmed-mean PCE at 3.25%, well above today’s 2.1%.

“Why did flexibility then become restraint now?” he questioned, adding that higher rates “cannot manufacture oil, reverse tariffs, or expand capacity.

Bessent Gets What the Fed’s Echo Chamber Misses

The Keynesian echo chamber is preparing its excuses. The Warsh Fed’s policy mistake will become "risk management." Expect elaborate rationalizations and little engagement with the facts.

This is not prudence. It is misdiagnosis.… https://t.co/PleD4oLaD6
— James E. Thorne (@DrJStrategy) October 8, 2026

Jurrien Timmer, Director of global macro at Fidelity Investments, also sees little sign of a hot economy, citing a Bloomberg survey forecasting 2.1% to 2.2% growth for 2026-2028 as “hardly booming.”

One thing I find interesting is that there’s a widespread narrative out there that real rates are rising in part because the US economy is running hot. It seems plausible, except that (aside from the strong PMIs) I don’t see much evidence of it in the chart below. The squiggles… pic.twitter.com/EswG1ltZG5
— Jurrien Timmer (@TimmerFidelity) October 7, 2026

He blamed fiscal risk and crowding out. Still, he said markets are demanding hikes and the Fed “should not have eased in 2025 and now must take those rate cuts back.”

The Fed is in a bind because the markets are demanding rate hikes, but those hikes will have a disparate impact on borrowers. The Government cares about rising rates but they can always kick the can down the road (if markets let them). But homebuyers and weak credits don’t have… pic.twitter.com/TlP3zUACID
— Jurrien Timmer (@TimmerFidelity) October 7, 2026

Fed Minutes Point to Another Hike By Year-End

Minutes of the Sept. 15-16 meeting, released Wednesday, showed “most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end.”

CME FedWatch tool shows that 18.8% expect the Fed to hike in October, but 84.5% expect a hike in December.

Bond Market Sells Off

The 10-year Treasury yield rose to 5.32% on Wednesday, its highest since 2002. The 30-year yield climbed to 5.70%, a 24-year high.

Investor Peter Schiff said 10-year Treasury yields will “soon surpass 5.5%,” pushing mortgage rates above 8%.

10-year Treasury yields will soon surpass 5.5%, pushing mortgage rates above 8%. The GSEs insure $7.8 trillion in mortgages with just $194 billion in capital. All it takes is a 2.7% loss to wipe it out. Instead of launching an IPO, Trump will be arranging another federal bailout.
— Peter Schiff (@PeterSchiff) October 7, 2026

On a $500,000 home with 10% down, he said the monthly payment is about $1,900 at a 3% rate but would top $3,600 at 9%.

Prices would have to fall nearly 50% to bring the payment back down, he added.

When mortgage rates were 3%, the monthly payment on a $500K house with 10% down was about $1,900. When rates rise to 9% next year, the same mortgage will cost over $3,600. At that rate, to reduce the payment to $1,900, the price of the house would have to fall by nearly 50%.
— Peter Schiff (@PeterSchiff) October 7, 2026

Price Action: The iShares 7-10 Year Treasury Bond ETF (NASDAQ:IEF) closed 0.017% lower at $89.11 on Wednesday, but climbed 0.030% to $89.14 in extended trading. The iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) closed 0.17% lower and lost 0.14% in extended trading.

Benzinga edge rankings indicate the iShares 7-10 Year Treasury Bond ETF has a Momentum score in the 26th percentile with negative price trends in the short, medium, and long term.

See More: Top Momentum Stocks

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo Courtesy: Andrew Angelov on Shutterstock.com

Higher Rates 'Cannot Manufacture' Oil or Reverse Tariffs: James Thorne Says Fed Eyeing Another Hike a 'Misdiagnosis'

Fed Is Fighting Overheating That Isn’t There

Fed Minutes Point to Another Hike By Year-End

Bond Market Sells Off