The Fed's September Pivot: What Investors Need to Know

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**Michael Zuber** (0:31)
Well, it looks like the Fed is sending out Christopher Waller to talk down rate hike odds. What do I mean by that? Well, as of yesterday, rate hike odds in September approached 63 percent. This morning, after Christopher Waller spoke, they are now 48 percent. That is a pretty significant drop. What did Christopher Waller have to say? Well, frankly, a lot. And we will go through a series of his quotes and talk about them. First and foremost, Christopher Waller is leaning towards keeping rates steady, basically saying continued progress to our 2 percent goal is reason enough to hold. However, he did say if we got a hot print, he would consider raising hikes. Now, what does that really mean? Because again, given the base effect, given year on year numbers, the chance that the CPI reading coming down are very low, just mathematically speaking. But Christopher Waller slipped this in there. This following caveat is really important to understand. Christopher Waller will not, will not be looking at the year on year number. Instead, he will be looking at the three month, three month inflation gauge. What is that? Basically, he said, and I quote, I don't want to put a number on it, but 2.8% and we are fine.
I don't want to put a number on it, but here's a number.
That's probably not going to make Warsh very happy. Warsh doesn't like forward guidance like that. But again, Christopher Waller basically saying, look at the last 90 days. If the last 90 days annualized, so take whatever the last three months are, multiply by four, that will be the run rate for the last 90 days. And if that is under 2.8%, he is comfortable holding.
If not, if it's hotter than that, then he will likely support a Fed rate increase. Waller says, and again, I quote, given disinflation, I'm sorry, give, not given, give, give disinflation a chance, we can wait one more meeting. Again, Kevin is talking about kicking the can down the loan to October, for which I say, you can't wait till October, Kevin. You can wait till December, sure, but not October. The Fed raises rates in October, they will be accused of all kinds of political interference and yada yada yada. There's 0% chance that you guys raise in October. So let's not get it twisted. Let's at least speak reality here. Christopher Waller says, don't want to raise rates into disinflation. Basically, tariffs, war, all of these things have been causing inflation, obviously. Christopher Waller is of the opinion that disinflation is starting to pick up.
Current rate setting could get us back to 2 percent.
Christopher, if that were true, you would be back near 2 percent. It's been, what is it, 58 months? You guys have failed at your job? 58 months, Kevin. That's not a good look, sir. In fact, anybody else misses their job for 58 months, they're probably getting fired. But hey, you do you.
Main Street America, not seeing loose conditions. That I agree with. Again, I think if you look at home loans, auto loans, credit cards, small business loans, not really going gangbusters. What is? Well, everything to do with AI, data center, tech, all of those. We will get some earnings data here in a minute. And again, it's very much the AI trade. So again, Kevin Warsh, going out, talking down September rate hike, and it worked clearly went from 63 percent to 48 There was actually a bunch more Fed speakers today. I guess they're at a conference or a panel or something. So we'll see if Kevin or Christopher Waller is the exception. We'll see if others are more aggressive. We will likely report on that on Sunday when we do the daily financial news. Yesterday, we got the Fed Beige Book. What is the Fed Beige Book? Well, it's essentially the summary of the 18 Fed districts. Again, basically looking at each individually, and then summarizing them, aka the Beige Book. Price increases moderately in eight of the districts, with two districts reporting modest increase. Again, you got to be very, very subtle with the vocabulary here. Employment rose very slightly overall. So again, prices, generally speaking up, the labor market is solid, looking at the Beige Book.