The Federal Reserve raised the federal funds target range by 25 basis points to 3.75%-4.00% on Wednesday, its first increase since July 2023, and the bond market answered by buying duration. The 10-year Treasury yield fell about 5 basis points to roughly 4.95%, one session after touching 5.04%, its highest level since 2007. In the first stretch after the statement the Nasdaq Composite traded up about 0.8%, the S&P 500 about 0.3%, and the Dow sat just under flat. A rate hike pulled the long end lower. That reaction is the story.

The May PCE report lands Thursday, and a week ago it would have been a non-event. The market’s working assumption was that the Fed would look through an energy-driven inflation spike caused by the Strait of Hormuz disruption, treat it as a supply shock, and keep its eyes on the back half of the year. That assumption is gone. Kevin Warsh took it apart at his first FOMC meeting on June 17, and the print now arrives into a reaction function that has been quietly rewired.