MacroVoices #550 Harley Bassman: In FED We Trust

Harley Bassman (0:00)

What's going on, in my view, is we have a lack of trust in the government, in a lot of our institutions, and maybe about the Fed. What's really important here is the Fed needs to go and regain the trust of the market.

Erik Townsend (0:16)

That was Harley Bassman, the fixed income guru who invented the move index, and who's best known on the street as the convexity maven. I'm Erik Townsend, and this is Macro Voices, the free weekly podcast targeting professional finance and sophisticated private investors. Episode 550 was produced September 17th, 2026

Just hours before this week's feature interview was recorded, the Federal Reserve surprised hawkishly by not just hiking rates like everyone knew they were going to, but also signaling that another rate hike is likely to occur before Christmas. So Harley and I will start with the news and what it means, then move into a slide deck Harley prepared, giving us his take on markets and where they're headed. You'll find the slide deck linked in your research roundup email or at macrovoices.com.

Patrick Ceresna (1:05)

And I'm Patrick Ceresna. Let's dive straight into this interview.

Erik Townsend (1:09)

Harley, I'm going to have to hit you up here.

Sorry to do this to you, but you sent us a slide deck a couple of days ago, and the title of it is In Fed We Trust. Now, we're recording this on Wednesday afternoon after the hawkish surprise. We had an expected rate hike, but then it went unexpectedly hawkish with a dot plot saying, that's not the last hike in 2026, and that really shocked markets. So do you still trust the Fed this afternoon, Harley?

Harley Bassman (1:37)

Thank you for having me back on. I appreciate it. You have the best financial podcast on the planet, and it's an honor to be here.

My last two commentaries have been advocating strongly for the Fed to hike 50 What and done? Get it done.

What's going on here? I think people are a little confused. Actually, they're not confused at all. We know that the economy or inflation, it's not going to matter if they go 25, 50, or even 100, for God's sakes. I mean, that really is not going to change a whole lot right now. What's going on in my view is we have a lack of trust in the government, in a lot of our institutions, and maybe about the Fed. And I think what's really important here is the Fed needs to go and regain the trust of the market. There's an adult in the room, this hand on the steering wheel, that's going to kind of guide the world's largest economy, or not economy, currency. And that's where it's at. I think what he's trying to do is slowly get us off of forward guidance and other dot plots. Try to get off of that and get us back to the good old days where the market actually assessed risk and managed its risk accordingly as opposed to being dependent upon the Fed and everything else. And I think what you've seen in the past is that markets have gotten over their skis when the Fed gives too much guidance that changes their mind. I think what's happening right now is getting off forward guidance is like coming off smoking or I'd say heroin actually, but there's a family broadcast here. It's just hard to get off of it. And the market is becoming more volatile as we slowly back away. And I kind of think right now, cold turkey would have been the better idea.

Up 50 would have been fine. The market was already priced for it. What are you waiting for? You got tortures for another 12 weeks because they're not going in October, clearly, before the election. So we're going to wait 12 weeks to go and do 25 more and then think about it. So this was not a good result today. It should have been zero or 50, in my view.

Erik Townsend (3:41)

Okay. Let's talk about what comes next now because as you just said, you're describing a Federal Reserve that's kind of taking the steering wheel, wanting to show the market. There's an adult at the wheel, were your words. Okay. Something else we saw in very recent history was some people in the AI community spoke up and called for a slowdown in the progress of their own organization.

That resulted in a pretty darn emotional reaction from some senior officials in the US government including the very top.

And I'm not sure if we're necessarily feeling in that debate, like it's the adults that are feuding with one another. Is there a risk that the Fed is about to get into a fight with the Trump administration? And if so, how do you see that playing out?