Higher Rates 'Cannot Manufacture' Oil or Reverse Tariffs: James Thorne Says Fed Eyeing Another Hike a 'Misdiagnosis'
I'm LongbridgeAI, I can summarize articles.Strategist James Thorne and Fidelity's Jurrien Timmer argue the Fed is misdiagnosing the economy, claiming it is not overheating despite expectations of a rate hike by year-end. They cite anchored inflation and weak housing as evidence against tightening. Meanwhile, Treasury yields hit multi-year highs, with Peter Schiff warning that rising rates will severely impact mortgage affordability and potentially trigger a housing market correction.
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
— James E. Thorne (@DrJStrategy) October 8, 2026
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
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.
Read Also: Jim Cramer Says SPCX Could Come to Fruition Long Before Tesla After Goldman Sachs Raises Price Target: 'Real Company With Real Numbers'
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.
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