Clay Carter CFA, FRM 
Senior Content Developer – FRM, CeriFi Bionic Turtle 

A year ago this week the Federal Reserve was cutting rates.  

On Wednesday it raised them, a quarter point to 3.75 to 4.00 percent, the first increase since July 2023, on a 12 to 0 vote. The statement closed with one sentence: "The Committee will deliver price stability." 

CFA® and FRM® exam candidates ask me what the curriculum is for. Weeks like this one are the answer. 

Every headline below is a reading you have already highlighted, with live numbers attached. 

The vote and the credibility test 

Start with the vote. The CFA® Level I economics reading on monetary policy says a central bank earns its credibility through independence and transparency, and it gives you a test for whether policy is tight: compare the policy rate with the neutral rate. Chair Kevin Warsh said he would be "hard pressed to describe broad financial conditions as restrictive," which is a claim that 3.75 percent still sits near neutral with core PCE at 3.3 percent.  

Run the Taylor rule from the CFA® Level III capital market expectations reading with a 1 percent neutral real rate, 3.3 percent inflation against a 2 percent target and a closed output gap, and you get a policy rate near 5 percent. By the rule, the Fed is behind, not ahead.  

The independence test arrived the same afternoon. President Trump said rates "should be 1%, or less," roughly 300 basis points below the new range, and the record for a single meeting is 100.  

The committee hiked anyway, unanimously. That is the credibility paragraph in practice. 

What it means for mortgages 

Now the number your neighbors care about.  

The average 30-year mortgage reached 7.24 percent on Thursday, a nineteen-month high and 125 basis points above late February. This is the annuity problem from CFA® Level I quantitative methods, the one you solve fifty times before exam day: 360 payments, a periodic rate of 7.24 divided by 12, present value 500,000, solve for the payment. The calculator gives $3,408. At February's 5.99 percent it gave $2,995.  

The Fed moved 25 basis points and the mortgage moved 125 because a mortgage prices off the 10-year Treasury plus a spread, and the CFA® Level I reading on mortgage-backed securities explains the spread. The borrower holds a prepayment option, so when rates rise, refinancing stops, cash flows extend, and the investor is left holding a longer bond at the wrong time.  

Negative convexity is a flashcard phrase until it costs someone $413 a month. 

Duration, convexity, and the 10-year 

The 10-year touched 5.04 percent this week, its highest since 2007. The CFA® Level II term structure reading tells you a hike need not lift long yields, because the long end prices the expected path of short rates plus a term premium. History says it usually does anyway. 

Across tightening cycles since 1963 the 10-year has risen 110 basis points on average in the year after the first hike, and a repeat would put it above 6 percent for the first time since 2000. Duration turns that forecast into a loss. A 10-year note near par carries a modified duration of about 7.8 and a convexity near 70, so the CFA® Level I formula, minus duration times the yield change plus half of convexity times the change squared, gives about minus 8.2 percent for a 110 basis point move.  

FRM® Part I asks the same question in dollars and calls it DV01. 

Diesel, backwardation, and the crack spread 

Diesel is why the Fed sounded hawkish. The EIA national average hit $6.285 a gallon for the week of September 15, a record, past the $5.82 set in June 2022, after disruptions in the Strait of Hormuz, an attack on a Saudi pipeline, and a refinery outage in Illinois.  

CFA® Level I economics files this under supply shock: prices rise while output falls, and a rate hike cannot reopen a strait or restart a refinery. The alternative investments reading gives you the trading angle.  

A squeeze like this usually pushes the front of the futures curve into backwardation, and backwardation means a positive roll return for whoever is long, which is part of why the ultra-low sulfur diesel contract just settled at a level not seen since it began trading in 1978.  

FRM® Part I adds the crack spread, the refiner's margin between crude and distillates. And because jet fuel comes from the same middle-distillate cut, my aviation students should read this paragraph twice. 

What zero skew is telling you 

Tech is not hedging. The one-month put-call skew on the Nasdaq 100 sits at zero, one of the lowest readings in twenty years against a long-run average of 0.11, according to The Kobeissi Letter.  

The CFA® Level II derivatives reading starts from a model in which puts and calls share one implied volatility, then tells you the market almost never agrees, because investors pay up for downside protection and the skew tilts toward puts. Zero skew means nobody is paying up while the Fed is raising rates.  

The CFA® Level III options reading treats skew as a signal for strategy choice. The behavioral finance reading has a shorter word for it: overconfidence. 

The next FOMC meeting is October 27 to 28 and futures price roughly even odds of another hike. Watch the 10-year at 5 percent, diesel at $6, and whether the skew stays at zero. You have already studied all three. Now you get to watch them move.