The Fed raised rates today.

So, the tightening that the bond market already delivered, as we discussed, didn't deter them.

And the hike was a unanimous 12-0. Warsh even led the statement with that signal of unanimity (after July's 9-3 hold). 

How did the bond market respond?

The 2-year Treasury yield opened at 4.65% and closed at 4.73%. The 30-year closed a touch lower, around 5.36%.

That's short end up, long end down.

That's a flattening yield curve. That's the Fed putting pressure on future growth.

Let's talk about Warsh's press conference.

The first question in the Q&A was well placed. A journalist in the room pointed out that a quarter point rate hike does not reopen the Strait of Hormuz. That addresses directly the point we made going in. You don't hike rates into a supply shock. In this case, it does nothing to bring down the price of oil. 

Warsh agreed. And this is where the rate hike was framed.

He said the Fed cannot affect any individual price, but what it can do is "ensure that any change in relative prices don't broaden out, don't have second and third order effects."

So he conceded the tool doesn't fix the problem, and hiked anyway to prevent the problem from spreading.

What would make it spread? A strong economy.

On that note, Warsh called the economy strong and strengthening. 

So, this was a hike to slow growth. This, from a Fed that Warsh said has "an attitude of optimism." Presumably, that means the Fed is confident that the economy can absorb a quarter point hike.  

That said, the old Fed takes a growing economy out back and shoots it.

The Warsh "mental model," as we've been told, is that you don't push demand down to respond to a supply shock. And you don't hike rates to slow an economy running hot on productivity gains. Hot productivity is the cure for elevated inflation.