The Fed Caught Wall Street Off Guard by Doing What Everyone Expected

On September 12, Andy Constan, a bond trader and analyst with more than three decades of experience on Wall Street, made a bold prediction about the near-term future of money. In his view, a strong economy, coupled with the Federal Reserve’s high interest rates, would soon cause inflation to tumble. On a phone call a few days later, he told me he didn’t think the Fed would raise interest rates at its September meeting, but it probably would one more time for the end of the year, before cutting rates around halfway through 2024. Since his job is to make as much money as he can for himself and his clients, he made a super-specific recommendation: Buy Treasury debt that matures in two years, he said. Soon, they would be returning more money to investors than the money-market cash accounts that are yielding more than 5 percent a year, and with far less risk than the topsy-turvy stock market. (Around the time, two-year Treasury notes were yielding just under 5 percent.) He was mulling buying those bonds, maybe even borrowing money to do so, as soon as the next day, according to the tweet.

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