Committed to a Discipline, Not a Decision: The Fed Redraws Neutral

The Fed’s September hike signals a durable inflation-fighting discipline and suggests that the neutral policy rate may be materially higher than markets previously assumed.

• The Fed raised the fed funds rate by 25 basis points to 3.75%–4.00% in September 2026, its first hike since 2023, after a persistent Middle East energy shock kept oil prices and inflation elevated.
• The authors interpret Chairman Warsh’s removal of rigid forward guidance and reference to “a measure of accommodation” as evidence that policy remains too loose and that further hikes could follow if growth and prices stay firm.
• They argue nominal r* may be closer to 3.5%–4.0% than the 2.5%–3.0% range previously embedded in market expectations, implying that a policy rate near 4% may be close to equilibrium rather than restrictive.
• Bank of America data show card spending per household rose 4.5% year over year in August 2026, or 3.7% excluding gasoline, while discretionary spending grew 5.9% for higher-income households and 5.7% for lower-income households.
• Corporate credit remains broadly resilient, but CCC-rated bonds have materially underperformed BB and B credits; high-yield spreads widened late in the quarter while defaults remained below long-term averages.

Takeaway: Calamos maintains a defensive duration stance, with short-duration positioning in Calamos Short-Term Bond Fund and Calamos High Income Opportunities Fund, while favoring higher-quality credit and keeping Calamos Total Return Bond Fund closer to neutral; the main risks are further Fed tightening and renewed credit dispersion.