I know. I know. I am on the record: a Federal Reserve hike to interest rates won’t fix anything. And, it won’t.

I am writing today because over the last decade plus, a hike has been a signal to get bearish: Don’t Fight The Fed. I don’t think that is the case this time. Famous last words.

There are 3 problems a hike can fix, even if it doesn’t solve anyone’s real-world problems.

Let's be real — this is bears' only hope in this market: long yields get high enough to pressure stocks. Yields generally rise for one of two reasons:

Right now, I'd argue both are pushing yields up — growth from AI capex, inflation from Strait of Hormuz supply constraints. A hike doesn't fix either one. But it fixes the perception, and perception is reality: it forces the bond market to revise its expectations downward on both fronts.

That's how you get a top in yields.

What better way to assert independence than to do the opposite of what the White House wants? And now there's cover from markets to do it:

I now view holding rates as the downside catalyst, not the hike. Markets hate surprises, and at this point a hold would be one — which is a polite way of saying it'd be a mistake. Before today, you could argue the Fed was reading market signals to land at the decision to hold. Not anymore.

Holding now would also undermine Fed credibility and independence. When you talk as unabashedly as Warsh, you need to back it up. Pausing today confirms the "all bark, no bite" read, Not necessarily fair, but it's the box he put himself in.

Finally, every central banker wants to look “tough on inflation” and “in control of the economy.” Even if 25bps achieves little-to-none, the act carries outsized weight with the public and markets. Skip the hike would be a major break in “central banker character” (for lack of a better term), allowing plenty to speculate this was Trump’s call, not the Committee's.

This [could perfectly] dovetails with the buyback program. If the hike plays out as in (1), the long end comes in, reflecting lower expectations for growth and inflation. That caps the odds Treasury's buybacks blow up: you're not fighting a market that keeps pushing long yields higher while you're trying to smooth the curve and manage duration. A calmer long end makes the buybacks look smart instead of forced.

Bessent and the Fed Chair made a show of unity at the G20. Maybe the two former Druckenmiller colleagues have been "colluding" all along.

Personally, I think the inflation that turned everyone hawkish these past few months comes down to the Iran War. Prior to the war, the data implied cuts by EOY — people are misremembering that. The conversation shifted once fertilizer, diesel, and gasoline damage spilled over into multiple inflation buckets, breaking containment from just energy inputs.

A hike (or series of them) won't fix what those constrained inputs are doing across inflation buckets. But it will help with the perception problem Warsh created. It'll likely draw the White House's wrath — hiking ahead of an election, as Powell did — but Warsh has boxed himself in.

I can't remember the last time markets seemed happy with a hike. Look at all this green on the S&P 500 as August CPI made a hike this week a lock. What a terrible climate to be a bear — even a hike can't calm the bull. But here we are.