The story of the third quarter depends on where you look. Equity investors finished it within touching distance of record highs. Bond investors finished it nursing some of their heaviest losses in years.

The Federal Reserve raised rates by 25bp to 3.75–4.00% on 16 September, in a unanimous decision and the first increase since 2023. Its projections have prompted markets to reassess the outlook: twelve of eighteen participants expect one further increase this year, while four expect two and the remaining two expect no further rise. The Committee does not project inflation returning to target until 2029.

Investors are facing a good set of problems right now. Growth is stronger than expected, earnings have been robust, and employment is holding up. In an ordinary year, each of those would be an unambiguous positive. This year, each one is also making life harder for policymakers as strength like this pushes up yields, keeps inflation stickier than anyone would like.