So, it's Fed day again. Usually I go on with Scott Wapner right after the Fed press conference. I'm not sure if Jay Powell is done quite yet, but he gets pretty repetitious as it goes along. Of course, as everybody expected, the Fed did not change rates today. What was interesting out of the Fed today was the phrase of the meeting and the press conference is 'we don't know.' Jay Powell said that repeatedly and once he actually reinforced that by adding after 'we don't know,' 'we just don't know.'
So it was interesting that they upped their assessment for where inflation would be in 2026 from 2.4 to 2.7. And of course they did that probably primarily if not exclusively because they had to. You would lose all credibility that you had left if a $30 move up in the price of West Texas Intermediate, and it's actually more than that from the end of last year where we were at about 57 and now we're up above 95, so it's almost $40, that should lead to a quite significant increase in headline inflation. So the Fed did say that and they use the core PCE probably because it's typically the lowest reading of any of the typical inflation indicators except now it's actually higher than most of the indicators or at least on top of. So they raised it for the year from 2.4 to 2.7 because they had to and interestingly they offset that a little bit in maintaining neutrality by upping their growth forecasts as well. So the growth forecast for this year went up by a tenth and the growth forecast in GDP for 2027 went up by three tenths.
So, they're expecting inflation in 2027 PCE. They claim that they expect it to be 2.1, which seems like they've been doing that for years now. And then in 2028, two years forward, they expect it to be 2.0, which I think has been their forecast ever since inflation started rising back in 2021. So, they've been dead wrong on their inflation forecast and therefore, they're in this 'I don't know what's going on' phase.
I've said repeatedly that the 2-year Treasury is what determines the Fed funds rate, really, not the other way around. And I think we have a tab on the webcast here that shows the chart of the Fed funds rate and the 2-year Treasury yield simultaneously going back to 2004. And it's very obvious that the Fed follows the 2-year. If we look back at going to the global financial crisis, we saw the two-year very substantially decline a couple of years before the Fed finally started cutting rates when they had to on an emergency basis and cut them pretty quickly over the ensuing 18 months, two years all the way down to effectively zero. And the Fed funds rate stayed at zero from 2008 until 2015.
And then the 2-year Treasury started rising though in 2013 and 2014, not aggressively, but it was gently rising. And finally, when the gap between the 2-year Treasury yield and the Fed funds rate reached about 100 basis points or at least 75 basis points, the Fed finally had to capitulate and they raised rates into 2018. Then the 2-year Treasury rate started falling in the middle of 2018 and the Fed started cutting in the middle of 2019. Perhaps this is why Trump calls Jay Powell 'too late Jay' because they seem to lag the two-year by a year or two.
That happened again in 2022 or 2021. In 2022, the 2-year Treasury rate started rising very rapidly in 2021 and it got to the point where the 2-year Treasury was almost 200 basis points above the Fed funds rate. That's when in the January meeting of that year when they finally started to raise rates, I said Jay Powell needs to 'paint or get off the ladder' because the message from the market had never been stronger that they were behind the curve. And that was followed up with the cutting cycle which began September 2024 and the 2-year Treasury actually peaked in 2022. So once again, the Fed was more than a year behind, and we got to one of the biggest gaps. The 2-year Treasury was 175 basis points below the Fed funds rate in September of 2024, and the Fed finally started cutting rates. And so far, it's been two kind of bursts of rate cutting. One was in late '24, early '25, and the next started in September of 2025. So both times it started in September.
And we've had an interesting pattern that's happened that I've talked about in the past, but it persists. And that is since the Fed started cutting rates in September of '24, all interest rates from the 2-year out to the 30-year Treasury have risen. The two-year Treasury rate has only risen by about a dozen basis points, but the 30-year Treasury rate is still 85 basis points above where it sat before the Fed cut rates in September of 2024. More recently, in this current burst of the Fed cutting interest rates, we've seen very little movement in either the shape of the yield curve or the interest rate level generally in the Treasury market. In September of 2025, since then, the two-year Treasury is up 17 basis points. The long-term Treasury bond is up 18 basis points. So, there's virtually no shape change to the curve going back to September. More recently, the yield curve has flattened with long-term interest rates rising since the Fed cut rates in January and two-year Treasury rates also rising, but now really not as much.
So, right now, the 2-year Treasury yield is about 373 or 374, which is the top end of the Fed's stated band for the Fed funds rate, which is 3 and a half to three and three quarters. I think of the Fed funds rate as being in the middle of the band. So 3.625. So presently the 2-year Treasury rate is above the Federal Funds rate, which suggests that there's a greater probability of the Fed raising interest rates than there is a probability based on the two-year Treasury of the Fed cutting interest rates. Not by a lot, but has shifted from being odds on bet for further rate cuts to odds on bet for perhaps in a modest way the potential for the Fed cutting rates.
I thought one of the most interesting things that Jay Powell said in what sounded like an ad lib. Someone asked about progress on inflation. Why you think you're going to make progress on inflation? And he blamed things on tariffs. He blamed things on the war indirectly and basically said that the inflation is really due to these policies. The tariff policy will run through the inflation system sometime this year and that's why we think inflation can fall in the out years. That seems like a very large assumption to me given the commodity prices are on the rise.
Year to date, the only things that are up in financial markets basically for a dollar-based US investor are gold, which is still up 12.3% year-to-date. The Bloomberg commodity index, amazingly, is up 23 and change year-to-date. Obviously, oil has a big role in that, but so does gold. Bitcoin is a loser again this year. It's down 18 and a half percent year-to-date. And what's up is the dollar by a small amount, a little under 2% year-to-date on the Dixie index. And emerging market equity, the EM equity ETF is up 6% year-to-date. Pretty much everything else is down with stocks down three and a half on the Dow Jones Industrials and the S&P 500 and the NASDAQ down about a percent more than that. So that's where we stand.
I think the phrase that Jay Powell mentioned was if we don't see the progress on inflation then we won't see the rate cut. That's when stocks started to kind of give up ground. I thought they would on that statement. I'll say that one more time because I think it's the most memorable thing from the press conference other than 'we don't know.' If we don't see the progress then we won't see the rate cut which rather suggests to me that the baseline is that we will not see interest rates cut anytime soon.
I was watching the preamble to the Fed statement and the press conference and what I heard were a lot of people saying, 'Well, everything's fine because we're going to get two more rate cuts this year.' That is not priced into the market whatsoever. In fact, there's almost no rate cut priced into the bond market this year, as I referenced quoting the two-year Treasury, which is on top of the top end of the Fed funds band. And so we're in a market where it's hard to make money. Bonds are up a little bit. Commodities are what's up. Real assets are where the action is. And it seems to me that the relief from the overvaluation of standard statistics on equity valuation, the relief is not going to come anytime soon. It seems to be almost a certainty that there will be no cut at Jay Powell's final meeting and that the prospect for rate cuts this year is greatly diminished.
Based upon that, one might expect continued incredible stability in the Treasury bond market where rates have been largely unchanged over the past year. And really, if you just take snapshots at every meeting, they've been very stable at almost the same level at every meeting this year. What we have seen of course are spreads widening out. As the equity market sits within a few percentage points of its recent record high, we see many parts of the market that are down very substantially particularly in the lower tiers of credit. And of course we have seen a tremendous firestorm in the private credit market. Something I talked about in a webcast with Bloomberg called Odd Lots four months ago at great length. And pretty much everything I described there has taken place in a relatively short time period subsequently.
So we now see that the triple C leverage loans in the bond market are now at almost 1,900 basis points spread versus SOFR. 1,900 basis points. That sounds like a lot of credit stress. We see high yield spreads out not tremendously, maybe 50, 60 basis points from their recent tights several months ago. Investment grade spreads up perhaps 20 basis points. So spreads are widening. Investors are perceiving risk and there's a general sentiment that without Fed rate cuts, there's very little fuel to propel risk markets.
Therefore, investors should stay with the game plan we've talked about in past appearances after the Fed meeting, and that is high in quality. I'm starting to hear this a lot being recommended in financial media. It's a little late for this. Should have done this a year ago. But it's still not overly late to continue to move upward in credit. Avoid the long end of the bond market which has been stronger lately because of the war. When war breaks out, the country with the biggest army and military might tends to be in favor and that's been the case with the war. Although the dollar is only up about 3% or so, 4% on the Dixie index from its low. I continue to recommend non-US investing in equities, which I've been recommending since January of 2025. That has definitely worked and I think will continue to work as the deficit in the United States, the budget deficit, continues to grow at about a two trillion per year annual rate.
And I pulled up the debt clock, debtclock.org, and the national debt has now climbed above $39 trillion. So we'll be at over $40 trillion by the end of 2026. That's something that you can take to the bank unlike perhaps the projections on inflation and on GDP. One thing that Jay Powell has emphasized repeatedly meeting after meeting is that long-term inflation expectations remain anchored. And he's right about that. If you look at the pricing of the bond market, if you look at the TIPS versus nominals, if you look at some consumer sentiment surveys and expectations of inflation, inflation is expected to be higher this year than last year by virtually everybody. But there's still a belief that inflation can come back down below 2 and a half percent in the relatively near term.
I believe that if those expectations go up to 3% and certainly if they surpass 3% by these various metrics, the Fed will have to hike interest rates. And I think that's why the Fed funds rate is now a little bit lower in the median of the band than the two-year Treasury. With that, we remain adhering to our investment strategies that we've outlined in our recent webcasts and what I talked about in the prior Fed post-press conference appearances and it's working very well and I continue to be honored to be a steward of your money and my money. Thank you for listening and thank you for your support. Goodbye for now.
