Does the Kevin Warsh Fed want investors to buy stocks or bonds?

Happy Wednesday out there team 42 at your skipper here. Darius Delta percent our macro minute for Wednesday September 16th, 2026. It's Fed hike Wednesday. So we got a lot to unpack today, but we'll be trying to catch out here quickly. So as always, we'll start with the executive summary from today's lead off morning note, which we published obviously before the Fed meeting. We're coming to you live shortly after the rate hike in between the rate hike and the the the the catcher washes out pressure. So and that will offer our thoughts, obviously, on what we saw in the summary, we can have the projections, the dot plot, et cetera. So without further delay, today's key macro question is, does the Kevin Wash Fed want investors to buy stocks or bonds? The short answer is likely bonds for now, stocks for the long run. The key supporting evidence is US dollar money markets currently view the Fed's policy rate setting as modestly accommodative according to the 42 macro market implied Fed neutral rate model. It must hike by two to four times to get back to neutral. The increased competition for capital has pushed up R star in the US by roughly 100 basis points in February per the 42 macro market implied Fed R star model. The real effective Fed funds rate is now below the lower bound of our market implied estimate range by roughly 50 basis points. If the Fed risks agitating bond vigilantes via sticky inflation, if it does not hike because it has fallen at least two rate hikes behind the curve as a result of this process. So obviously, we saw one of the hikes today. We shall see more. What does this mean for your portfolio? And Kevin Warslet Fed that chooses to bury its head in the sand and ignore these publicly available data points by falling short of the market's current expectation of three rate hikes over the next 12 months is a Fed that is signaling to investors that it cares more about the stock market than the bond market. If the Fed opts for this two-dovish policy, two-dovish too soon policy prescription, its actions will likely pull forward a more aggressive treasury bond by the Fed program, substantial bank deregulation, accelerated reserve management purchases and/or explicit yield curve control. Why? Because the mean of 42 macros 5 to 10-year nominal yield models is currently 6.00%, 6%. Fixed income technicals will likely continue to force markets towards this equilibrium rate, absent policy intervention. And so normally, we wrap up with a question from our community. But I thought it'd be interesting to kind of just quickly briefly go over the summary of economic projections with you guys live to get a sense of how we are adjusting our views on the outlook for Fed policy. And the quick takeaway is, no need to change. We beat all of global Wall Street according to Nick Turemos' post yesterday night to our play action pass set up the run thing, which is our view that the Fed will titan sickically, titan on a transitory basis, to set the create the conditions in the scope to ease structurally in order to support or really combat the geopolitical driven spot of man and bouts in the treasury bond market. And so this rate hike today this afternoon is the first step in that play action pass process. But ultimately, all they're trying to do, they're not actually trying to launch the ball deep all game. What they really want to do is just back the linebackers and the safety's off so they can create more space in the run game. Space in the run game equals scope to ease monetary policy. Right now, the bond vigilantes aren't given them enough space. So getting them into-- and these are all American football references for my friends across the globe, global Wall Street, about half of our customers around the world are international. So I've got to keep that in mind when I use these football references. But neither here nor there. Getting into this latest dot plot-- so let's just go down the list. I mean, to me, it's pretty ridiculous. So I want you guys to see my reactions to it in real time. So we'll start with the GDP. Fed's expecting a slightly pick up in GDP in 2026, slight pick up in GDP in 2027, 2.2 same in 2028 and 2029. I think the US is a trend 2% real GDP economy. No change to unemployment rate, 4.1 all the way through. This is actually an increase-- or so improvement in their previous projections of 4.3 in 2026 and 2027 and 4.2 in 2028. So they think growth is going to be more resilient. They think the labor market is going to be more resilient. And obviously, that's part of the reason why they feel like they have some scope to tighten monetary policy here. Inflation is where the laughs and the jokes really start to kick in. So if you read the Fed statement on the inflation paragraph in the statement, which is pretty short, they said today's policy action will support a timely return to the committee's 2% goal. So let's just look at their PC inflation projections. They're expecting 3.7% in 2026 versus 2.6 prior in June. They're expecting 2.3% in 2027. They're expecting 2.1% in 2028. So some serial stickiness to inflation. That's a positive revision relative to 2.0% they're expecting in June. And then ultimately, they expect to finally get to their 2% target in 2029. And again, let me read the statement again. It says today's policy action will support a timely return to the committee's 2% goal. Again, the most recent June, the June FOMC got saw them getting back to 2% inflation in 2028. The most, today's SEP has them getting to 2% inflation in 2029. So riddle me of this. I only have a Yale degree. That's it. That's all education I've obtained. And I know that doesn't mean much. But I'm pretty sure that 2029 is later than 2028. So I don't know if they think we're stupid, or if they're stupid, but this is stupid. So we'll figure out what the bottom market's going to vote on this in the coming weeks and months. And ultimately, we're going to figure out what the Fed is actually trying to do here. I think we already figured out what the Fed is actually trying to do here. We understand the binding constraints of the system in the context what has been our macro-smanagement North Star since the summer of 2023, in terms of our paradigm, A3 framework, A being the geopolitical driven supply of man and balance in the treasure by market, B being the cut, the deficit, the one of the three sentable treatment options to deal with the debt disease. We're currently in paradigm C. Our friend Lisa Bramber, it's a boomer today. It took slight offense to one of her comments. She said this robust economy-- so I'm paraphrasing, but this booming economy has surprised all the economists on Wall Street. I'm pretty sure I'm an economist on Wall Street. And we're the ones who authored the resilient US economy theme in the summer of 2022. When consensus was freaking out about recession, we also authored the paradigm C, A.K.A. running hot theme in April of last year when consensus was freaking out about terror. So we've been expecting this booming paradigm C resilient US economy the entire time. And so this is why we have a lot of conviction in our belief that the neutral rate has gravitated higher. The R.S.R. has gravitated higher. And it's finally looking at the Fed's projections on the neutral rate. They're expecting the neutral rate to be somewhere around 3.2% on a median basis that's a positive revision to their 3.1% projection in June. Our model currently has the neutral rate somewhere between 4.25 and 4.5%. So the Fed thinks the neutral rate is about 100 basis points below what the market is currently priced in the neutral according to our model. And so either the Fed's wrong or the market's wrong. And if the Fed's wrong, the bond market's going to pull up. And if we're wrong, then we'll kiss and talk to them. We'll just risk manage that better than I would. In my opinion, it'll risk manage that better than most investors would, because again, we're listening to the wisdom of the crowd as opposed to what's going on in between dairy sales here. So we're wrapping up there. Dairy still here presenting our macro men for Wednesday, September 16th, 2026. Best of luck out there today. We'll catch you back here tomorrow. Cheers. [VIDEO PLAYBACK]