Will the Fed, ECB, and BOJ cause problems for investors this fall?

Happy Tuesday out there, Team 42. It's your skipper here, Darius Dell, to present our Macro Minute for Tuesday, September 8th, 2026. Hope everyone had a long, enjoyable holiday weekend with their family. So as always, we'll start with the executive summary from today's lit off morning note. So let's dive right in. Today's key macro question is, will the Fed, ECB, and BOJ cause problems for investors this fall? The short answer is yes. They will likely cause more problems for bond investors if they do not tighten monetary policy. They will likely cause problems for stock investors if they do. Why? Because central banks that do not perform their core functions of balancing aggregate supply and aggregate demand in their economies signal contentment with sacrificing long-term credibility for short-term economic wins. The timing of this debate is crucial because the marginal supply of global capital is currently being dwarfed by the marginal demand for global capital, a supply-demand imbalance that is set to deepen in the coming quarters. This is a big problem for sovereign bond markets worldwide that are currently priced below interest rate levels that would signal a return to a normalized rate regime. Thus, the risk of a disorderly jump condition to more appropriate interest rate levels and spreads is not immaterial if these core central banks signal a deepening addiction to easy money. There are no free lunches in global financial markets. As always, to wrap up with a question from our community, this one's titled, Does No September Hike Equals Going Straight to the Run Game? If the Fed chooses not to hike in September, and assuming Warsh and Besson are fully aware of the $12 trillion in Treasury refinancing wall and rising R-Star, does that mean they've given up on play-action-pass game plan? Have they decided to just run the ball up the gut four straight downs and take us into paradigm D? And then the follow-up says, A good point, and if so, could this signal the end of the market's perception of a hawkish Fed chair? So it's our view that they will be best served, the administration will be best served to preserve optionality by delaying paradigm D, D being default for development, debasement as default via debasement, rather, for as long as possible. Paradigm C is unequivocally the best possible outcome as it relates to dealing with paradigm A's debt disease. You got paradigm B, which you try to cut your way out of the problem in terms of deficit reduction. You got paradigm C, which is try to grow your way out of the problem in terms of booming the economy. And then ultimately paradigm D, you wind up just printing the demand for the debt securities. Paradigm D is historically, when you look at different economies around the world across millennia of economic history, paradigm D, typically gets followed over by, followed by paradigm E, which is the flipping over of the monopoly board, you know, in response to the elevated inflation, et cetera, from a socioeconomic standpoint. So in our view, anything that pushes you towards that ultimately, really the left tail outcome is negative. So ultimately the goal should be to try to stay in paradigm C for as long as possible. And so in our opinion, staying in parent, what would allow the administration to stay in paradigm C, grow your way out of the problem for as long as possible is a federal reserve that actually acknowledges the backup in our star with tighter monetary policy on a transitory basis that will ultimately give it, you know, provide some time and create scope for more sustained structural easing once we get the task force results, which we, in our opinion, based on our research are likely to be dovish on a net basis. And so if that's true, then, you know, not tightening monetary policy into that would ultimately cause significant problems in the bond market, accelerating problems in the bond market, not just domestically, but globally. And so ultimately you could, you know, have this whole paradigm C experiment crashing down on their heads anyway if they allow the bond market to really get, you know, significantly disrupted by, you know, kind of a commitment to easy money. And so, you know, I guess the question is really asking is what if they just, you know, you know, skip this whole song and dance and just go straight to, you know, yield curve control or TGA funded buybacks, which will inevitably lead to yield curve control. In our opinion, they could just do that. But in our opinion, we think that's the less smart, option, the better option would be to try to preserve optionality for as long as possible by preserving paradigm C, the growth phase for as long as possible. So we could be wrong on that. And if we're wrong on that, you know, we're definitely, you know, it's obviously a fluid situation. You know, if I'm being honest, I don't think these guys know what the best game plan is from here. I think we have a general sense of what the best game plan is from here, but this is a, you know, this is, there's no easy answer here. I don't want to pretend like we have all the answers. There are no easy answers here. We're dealing with the intractable problem called a geopolitically driven supply demand imbalance, in the treasury bond market. This is not a problem that is easily solved. You can have all the world's smart people in the world and sitting in a room for hours and weeks and on in, and they'll never solve this problem. So, you know, we're offering what we hope are credible solutions. But then at the end of the day, I don't think anybody's going to solve this problem very easily. I don't think the problem is ever going to truly be solved. So ultimately we do think we're going to wind up in paradigm D and eventually in paradigm E. It's just a matter of time from our perspective. So we'll wrap it up there. Terry Stell here presenting our macro minute for Tuesday, September 8th, 2026. Best of luck out there today. We'll catch you back. Thank you, tomorrow. Cheers.