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Jim Bianco’s argument is simple. The Fed began cutting in September 2024, the 10 year yield later rose roughly 130 basis points and the 2 year rose too, therefore the bond market rejected the easing cycle. The problem is that the charts do not prove that conclusion. Treasury yields are not a scorecard grading the last Fed decision. The 10 year reflects expectations for future short rates, growth, inflation and term premium. Yields can rise because growth expectations improve, inflation rises, an energy shock changes the outlook or markets expect the Fed itself to tighten later. The Timeline Matters Bianco’s chart shows the 10 year rising from 3.70% in September 2024 to 4.79% by January 2025, then falling back near 3.95% by October 2025 and 3.94% by February 2026 before surging toward 5%. Using those endpoints, roughly 106 of the 130 basis points of net increase occurred after February 2026. That does not prove the energy shock caused the move. It does show this was not one uninterrupted rejection of Fed cuts. Markets Were Pricing Flawed Information The Fed slowed and eventually paused easing while payroll growth still appeared resilient. Bond markets were looking at the same data. Later QCEW based benchmark revisions showed employment growth had been materially overstated. The March 2024 benchmark ultimately removed roughly 589,000 jobs while the March 2025 benchmark eventually removed about 898,000. Markets do not price the true economy. They price the economy visible to them. If investors believed employment was stronger than reality, they would naturally price fewer cuts, stronger nominal growth and higher yields. A bond selloff influenced by overstated labor data cannot later be treated as proof that monetary policy had been too easy. Monetary Policy Works On Two Clocks Markets can reprice instantly. The real economy cannot. Rate changes move gradually through refinancing, mortgages, business borrowing, investment, hiring and consumption. Many effects historically take roughly 9 months to 2 years or longer. And cutting rates does not automatically create easy money. A company refinancing an old 3.5% loan at 6.5% is still experiencing substantially tighter financing even if that rate might have been 7.5% without Fed easing. Policy can ease at the margin while earlier tightening continues working through the economy. History Breaks The Simple Argument Spring 2008 is the clearest example. Between March and June 2008, the 10 year Treasury rose roughly 93 basis points while the 2 year surged around 170 basis points despite aggressive Fed easing. If rising yields proved policy was too loose, the Fed should have tightened. Yet the NBER later determined the recession had already begun in December 2007. By December 2008 the 10 year was near 2%. The opposite has happened too. During the 2004 to 2005 tightening cycle, long yields sometimes fell while the Fed raised short rates. Policy rates and long yields do not move mechanically together. The Real Question The proper question is not whether yields rose after cuts. It is why they rose. • Did expected growth increase • Did inflation expectations rise • Did term premium increase • Did overstated payrolls make the economy appear stronger • Did the energy shock alter the inflation path • Did markets begin expecting the Fed to reverse course September’s Empire State survey now shows new orders falling from 17.3 to 2.0, shipments turning negative and expected workweeks falling below zero while input costs remain elevated. That looks far more like a cost shock colliding with weakening demand than an economy desperately needing further demand destruction. Bianco’s charts prove expectations changed. They do not prove the Fed caused that change, that keeping rates higher would have produced a better economy or that hiking now would fix it.

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