STRAIGHT FROM THE TRADING FLOOR
by Michael P. Reinking, CFA & Eric Criscuolo
DOW 51,462 (-631), S&P 500 7,552 (-34), Russell 2000 2,859 (-11), NYSE FANG+ 18,466 (-39), ICE Brent Crude $105.48/barrel (-$3.27), Gold $4,302/oz (-$31), Bitcoin ~76.1k (+711)
- Hike as expected
- Economy strong, resilient; Inflation overwhelming focus
- Equities sell off
- Rates reverse higher, curve flattens
MAC Desk Commentary:
For the first time since January 2023, the FOMC unanimously hiked rates by 25bps, which the Committee said “will support a timelier return” of inflation to their stated 2% goal (more on that in a minute). The outcome was widely expected though the unanimous support was somewhat surprising. Once again, the statement followed Warsh's principle of brevity, with no major changes to the description of the economy, while stressing “The Committee will deliver price stability.”
The last update to the Summary of Economic Projections (SEP) was at the June meeting. A lot has changed since then, except for inflation which remains well above target. Chair Warsh once again refrained from submitting his projections. GDP estimates were increased by 0.1% in both 2026 and 2027. The Unemployment Rate moved lower by 0.2% holding steady at 4.1% through next year. Inflation projections for this year increased by 0.1% but fall significantly next year with core declining from 3.4% to 2.5%. That expectation however is largely in line with the last SEP in June. It’s notable that the Committee does not see core returning to target until 2029. That stretches the meaning of “timely”. It also makes the dot plot and Statement somewhat conflicting.
There was broad support for an additional hike with 16 of the 18 officials seeing at least one more by year end, with four of them penciling in 50bps of increases (i.e. 2 hikes). The surprise comes in 2027 with the median dot holding steady at 4.1%- despite core median core PCE expectations of 2.5%. However, it also produces a "higher for longer" outcome. Assuming we get one more hike this year, 8 officials expect one additional hike next year, 6 expect rates to remain unchanged and 4 officials project multiple rate cuts. If the hope for today was to gain credibility in its inflation fight the supporting materials felt more like a boxer sizing up its opponent with some jabs to get spacing as opposed a throwback Mike Tyson in the first round.
During his prepared remarks the Chair suggested that the rate hike comes at a time when the economy seems to be strengthening and reiterated, “I would be hard-pressed to describe broad financial conditions as restrictive. This view was widely shared by the Committee. So, we removed a dose of accommodation.”
This seems to suggest that the Committee is looking to unwind some if not all of the late 2024 cuts. He later said, “The decision we made today was a sober decision”, so at least we know they weren’t playing beer pong for two days. The press conference lived up to its billing with a less communicative Fed Chair. He didn’t really shed any additional light on the path of policy outside of saying he won’t prejudge it and reiterating he prefers trends over data points. The press was limited to one question which he often cherry picked and the press conference seemed to end promptly at 3:00 with Warsh doing his own version of an Irish goodbye.
Expectations for a hike in October stand at ~50%, up from 44% yesterday and 18% a week ago. That would be just before the mid-terms. Speaking of, President Trump had some not terribly surprising comments on the Fed decision, saying "Interest Rates in the United States should be 1%, or less..." Market odds for another hike after that, to 4.25% - 4.50%, in December stand at 39%, up from 29% yesterday and 10% a week ago.
The S&P had a modest gain heading into the decision. Equities initially fell on the release, then rallied back early in Warsh’s presser. That didn’t last long though as stocks turned decidedly lower in the middle of the Q&A. The S&P fell as low as 7510, tagging the 100d ma, before bouncing into the close to end the day down 0.5%, at ~7550. The Russell 2000 ended the day inline.
The equity weakness came as yields sharply reversed. The 2y yield was down ~5bp before the release. However they moved higher after the release and didn’t look back, ending the day up 7bp, a ~14bp reversal from the lows. The 10y and 30y also ended the day well off their lows but finished largely unchanged on the day. The Dollar Index rallied strongly, driving back up through 100.
Financials saw the most weakness as the short-end move bear-flattened the yield curve. Energy led the decliners overall with oil falling.
For tomorrow we have Housing starts, Pending Home sales and jobless claims on the calendar, along with the Philly Fed manufacturing index. The BOE will have its rate decision as well. Enjoy your evening.
STRAIGHT FROM THE TRADING FLOOR
by Eric Criscuolo
Published on 9/16/26 (a/o 9:00 am)
Good morning and Happy Fed Day,
Yesterday oil continued to rise with disruptions in Libya joining the well-known Iran and Saudi troubles. Sectors were broadly lower outside of Energy as the S&P 500 failed to hold 7600: the 50d ma and the lower boundary of the past month’s trading range we’ve been noting. Treasury yields were largely unchanged however, but the Dollar strengthened, pressuring metals. Bitcoin was under pressure all day ahead of the Senate’s procedural vote on the Clarity Act, which ultimately failed in a procedural vote as it put up an effort similar to the Mets in the 1H of the season.
Ahead of the Fed rate decision and Warsh’s presser this afternoon US futures are higher as crude is giving back some of yesterday’s gains and retail sales were solid. VIX options expire at the open and the CRSP (Morningstar) reconstitution begins at the close.
With oil lower yields have come in as well, down 2-4bp across the curve. The market has priced in ~90% chance of a rate hike following hawkish Jackson Hole comments from Warsh and still-elevated inflation prints. Assuming a hike and an abbreviated FOMC statement, focus will quickly pivot to the updated Summary of Economic Projections (SEP), which was last updated 3 months ago, followed by Warsh’s comments during his press conference. A hawkish lean could bring long-term rates lower by mitigating uncertainty and supporting inflation fighting expectations. The 2y is about 100bp above the Fed Funds target rate, signaling expectations for further hikes that have already run through equities. Looking at the economic data, Retail Sales beat expectations, both headline and the control group that feeds into GDP. The data adds to the case for a rate hike today. Headline rose 1.2% in August, more than reversing a decline in July and seeing its highest growth in 5 months. The control advanced 1.4%, the highest in 2 years. 12 of the 13 major retail categories increased. Among the largest gainers, gas stations (no surprise) grew 3.1%, nonstore (online) retailers +2.6% and miscellaneous stores +1.9%.
Europe is trading modestly higher. Bund yields are slightly lower following 20y and 30y auctions in Germany. EU Industrial production was slightly better than expected while UK CPI was inline and PPI hotter than expected. The EU invited Canada to become the organization’s first associate member, while also proposing a new security group between the EU and other countries including Canada, UK, Ukraine and Norway. EU President von der Leyen said during her State of the EU address that the trade deficit with China has hit a tipping point, driving deindustrialization in Europe’s heartland. The two parties will discuss their relationship next week ahead of an October summit.
The Nikkei rose 0.7% last night. Sharp announced it was taking orders for NVDA AI servers as part of a new business which it expects will generate ~$1.6B in FY30. South Korea’s KOSPI rose over 1%. SK Hynix (+4% local) is reportedly in talks with Intel to manufacture memory chips in the US as the US weighs new semiconductor tariffs. Trading volumes in the 1H September are more than 50% below June’s record high as the AI trade fervor subsided. The MCAT-like educational program that regulators adopted for investors before they are allowed to trade leveraged ETFs seems to have also curbed activity. China was higher as well with the mainland outperforming Hong Kong. Treasury Secretary Bessent will meet Chinese Vice Premier He this weekend ahead of the Trump-Xi meeting next week, and there’s been growing talk of both sides cutting energy and ag tariffs.
Economic Data:
US:
Yesterday oil continued to rise with disruptions in Libya joining the well-known Iran and Saudi troubles. Sectors were broadly lower outside of Energy as the S&P 500 failed to hold 7600: the 50d ma and the lower boundary of the past month’s trading range we’ve been noting. Treasury yields were largely unchanged however, but the Dollar strengthened, pressuring metals. Bitcoin was under pressure all day ahead of the Senate’s procedural vote on the Clarity Act, which ultimately failed in a procedural vote as it put up an effort similar to the Mets in the 1H of the season.
Ahead of the Fed rate decision and Warsh’s presser this afternoon US futures are higher as crude is giving back some of yesterday’s gains and retail sales were solid. VIX options expire at the open and the CRSP (Morningstar) reconstitution begins at the close.
With oil lower yields have come in as well, down 2-4bp across the curve. The market has priced in ~90% chance of a rate hike following hawkish Jackson Hole comments from Warsh and still-elevated inflation prints. Assuming a hike and an abbreviated FOMC statement, focus will quickly pivot to the updated Summary of Economic Projections (SEP), which was last updated 3 months ago, followed by Warsh’s comments during his press conference. A hawkish lean could bring long-term rates lower by mitigating uncertainty and supporting inflation fighting expectations. The 2y is about 100bp above the Fed Funds target rate, signaling expectations for further hikes that have already run through equities. Looking at the economic data, Retail Sales beat expectations, both headline and the control group that feeds into GDP. The data adds to the case for a rate hike today. Headline rose 1.2% in August, more than reversing a decline in July and seeing its highest growth in 5 months. The control advanced 1.4%, the highest in 2 years. 12 of the 13 major retail categories increased. Among the largest gainers, gas stations (no surprise) grew 3.1%, nonstore (online) retailers +2.6% and miscellaneous stores +1.9%.
- US 2yr -3bps to 4.64%, 5yr -3bps to 4.80%, 10yr -3bps to 4.98%, 30yr -2bps to 5.35%
- USD index: +$0.09 to $99.43
Europe is trading modestly higher. Bund yields are slightly lower following 20y and 30y auctions in Germany. EU Industrial production was slightly better than expected while UK CPI was inline and PPI hotter than expected. The EU invited Canada to become the organization’s first associate member, while also proposing a new security group between the EU and other countries including Canada, UK, Ukraine and Norway. EU President von der Leyen said during her State of the EU address that the trade deficit with China has hit a tipping point, driving deindustrialization in Europe’s heartland. The two parties will discuss their relationship next week ahead of an October summit.
The Nikkei rose 0.7% last night. Sharp announced it was taking orders for NVDA AI servers as part of a new business which it expects will generate ~$1.6B in FY30. South Korea’s KOSPI rose over 1%. SK Hynix (+4% local) is reportedly in talks with Intel to manufacture memory chips in the US as the US weighs new semiconductor tariffs. Trading volumes in the 1H September are more than 50% below June’s record high as the AI trade fervor subsided. The MCAT-like educational program that regulators adopted for investors before they are allowed to trade leveraged ETFs seems to have also curbed activity. China was higher as well with the mainland outperforming Hong Kong. Treasury Secretary Bessent will meet Chinese Vice Premier He this weekend ahead of the Trump-Xi meeting next week, and there’s been growing talk of both sides cutting energy and ag tariffs.
Economic Data:
US:
- API crude inventories: 7.14M vs -1.8M cons, prior -0.3M
- Mortgage apps: -0.8% vs prior -0.2%
- Refis: -8.8% vs prior -6.2%
- 30y rate: 6.97% vs prior 6.85%
- Retail Sales m.m: 1.2% vs 0.8% cons, prior -0.6%
- Control group m.m: 1.4% vs 0.4% cons, prior -0.4%
- Export / Import prices m.m: 0.6% / 0.7% vs 0.5% / 0.4% cons, prior -1.4% / -0.3%
- 10:00am Inventories
- 10:00am Housing Index
- 10:30am EIA crude inventories
- 2:00/2:30 pm Fed Decision/Press Conference
- 4:00pm TIC Flows
- Japan Trade Balance: -¥1105.6B vs -¥1052.6B cons, prior -¥638.3B
- Japan Machine Orders m.m: -3.7% vs -2.8% cons, prior 9.7%
- UK CPI y.y: 3.1 vs 3.1%% cons, prior 2.9%
- Core: 2.6% vs 2.6% cons, prior 2.6%
- EU industrial production m.m / y.y: -0.1% / 0.0% vs -0.2% / -0.1% cons, prior -0.1% / -0.3%
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