Bond markets are still in a post-FOMC fog. Next week offers plenty of trading opportunities with a new round of monthly data prints. Issues in Italy, even if they calm from today, will help keep a lid on 10-yr UST yields in the 3.08% area. It will take a big labor market report to challenge support there. Equities approach the end of the quarter with solid gains in the bank but little additional interest today. The FOMC meeting left investors willing to price in a high confidence of hikes penciled in for the next 9 months, but no further. If the Fed is going to switch to a responsive mode – watching data before proceeding with real tightening – that’s a solid approach. As quarters roll ahead and the economy stays the course, the Fed’s approach creates an upward bias for interest rates. It also lowers the odds of volatile, upside rate surprises while making bond prices respond to economic data trends rather than monthly releases. Everyone remembers “rates used to be higher.” And, they want to rely on past trends for deciphering where the Fed should go next. Despite the popularity of that approach, it’s helpful to also remember the Fed hasn’t engineered a soft landing in 23 years. Does that mean it’s due for one now? Preliminary answers to understanding the history of 10-yr UST rates and the influence of Fed policy over the decades are found in an analysis of the long-term decline of natural rates (R*). It’s not a perfect indicator, but it is better than previous alternatives. The article recasts historic rate trends and reconsiders Fed policy making in light of the different challenges the central bank has faced since the early 1980s. The next Weekly Report is scheduled for publication on October 12.