One Hike, None, or Many?
Something has to give – eventually... The market is telling the Fed what to do... A rate hike is the boring thing... The one door nobody is priced for... The possible outcomes, near and far...
Something has to give...
Just consider... the pace of inflation is warm, if not hot. Consumer prices were up 3.4% year over year in Friday's consumer price index ("CPI") report for August. Gasoline alone accounted for more than one-third of the monthly increase.
Meanwhile, the government's debt keeps on rising. It just crossed $40 trillion.
AI investment is sustaining GDP growth. But there's a rising backlash against the technology – with public opposition to data centers and new worries about AI causing human extinction.
Something has to give – eventually. Hopefully, it's not us. But a wise bet says we'll see more of the same...
Today marks the start of the Federal Reserve's meeting...
It wraps up tomorrow at 2 p.m. Eastern time with an interest-rate decision... a fresh set of economic projections... and a press conference, which all influence the market's near-term future.
New Fed Chair Kevin Warsh has been saying since he took the job that the market will tell the Fed what to do, not the other way around.
He wants what he has called "an unfiltered message from markets," to let buyers and sellers set the price of Treasurys and the dollar, and then to read what that says about policy.
If that's the case, the market has been signaling that the central bank should raise its benchmark interest rate.
Still, we'll have to wait to see whether tomorrow brings one hike (what the market expects), the first of several hikes (what few are positioned for), or if Warsh surprises the market by doing nothing at all.
'Global issues,' local impact...
Short-term and long-term Treasury yields have risen quickly over the past month, in part because of U.S. inflation concerns and renewed energy supply disruptions in the Middle East. But also because of the appeal of other debt – be it overseas or in the corporate market with AI-related bonds.
The 10-year Treasury yield touched 5.04% earlier today – its highest level since the summer of 2007. The 30-year hit a 19-year high at 5.38%.
Foreign investors are even preferring U.S. stocks to Treasurys, as the Financial Times reported today. Deutsche Bank's figures put net foreign equity inflows at about $600 billion for the year through March – the widest margin over bond inflows on record.
During congressional testimony today, Treasury Secretary Scott Bessent chalked up the recent yield increases to "global issues."
Whatever the reasons, "We the People" will feel the effects. The futures market is convinced a rate hike is coming. And the Fed's overnight interest rate filters through the economy to mortgages, auto financing, and other loans.
Federal-funds futures traders put the odds of a quarter-point hike near 93% as we write today, up from 71% before last week's inflation report. That would take the target range to 3.75% to 4%.
Meanwhile, the more Fed-policy-sensitive 2-year Treasury yield is at 4.67%, up from around 4.25% less than a month ago. The fed-funds target range today is between 3.5% and 3.75%. So the 2-year note is suggesting a series of rate hikes ahead.
But it's not a done deal...
Recently, President Donald Trump, who nominated Warsh to the job in March stumped for lower interest rates. It was the first time he did so publicly since Warsh started the job. That puts the central bank – and perhaps the economy – in a bind.
Inflation suggests a hike is in order. The White House says cut. Warsh's own doctrine says let the market decide... and the market says raise.
In July, Warsh also faced internal opposition from a few Fed members who voted to raise rates, even when the argument to "hold" was easier.
But oil and diesel prices have risen for months now. And as we covered in yesterday's Digest, Iranian-backed Houthi militants seized two islands in the southern Red Sea and shut down a major Saudi pipeline over the weekend. The national average for gasoline is $4.33 a gallon.
Oil futures moved higher again today – West Texas Intermediate's October contract was up about 4.5% to almost $106 per barrel and Brent crude's November contract was up 3% to almost $109 – as Saudi Arabia reportedly canceled some crude oil cargoes.
How much longer can Warsh keep stalling without risking even higher rates of inflation and bringing on a new set of risks to the economy? We'll find out tomorrow.
If Warsh announces a rate hike, he's likely to draw scorn and face pressure from the person who picked him for the job. So, at the least, expect some spin in the post-meeting presser about how a hike is a positive thing because growth is going so well, thanks to AI.
But here's the thing. We don't need to know for sure what's going to happen. As Dan Ferris likes to say, we can prepare for the outcomes...
It might not be so complicated...
Start with what Warsh himself said at Jackson Hole last month. He would be, in his words, "hard-pressed to describe broad financial conditions as restrictive." That is a Fed chair telling you current interest-rate policy isn't slowing down the economy.
The chart below says the same thing. U.S. financial conditions are already considered "loose," as Cameron Dawson from NewEdge Wealth illustrates with this measure of credit spreads and stock market indicators, which is back near the loosest levels of the past five years (hat tip to Daily Chartbook)...
What happens next, in the short term, comes down to three options...
The Fed could start raising rates, with the intention of cooling inflation a bit. That might sound concerning, but markets already expect this, so don't expect a sharp sell-off if it happens.
Or Warsh could "surprise" everyone and keep rates steady again. And he'd have more to work with than you might think. Core CPI – excluding food and energy – actually cooled in August, to 2.4% year over year from 2.5% in July. The hot part of the CPI report was gasoline, up 27.4% from a year ago – a supply shock out of the Red Sea that no interest rate is going to fix.
The Fed chair could stand at the podium and argue that the underlying trend is improving and everything else is war-influenced (albeit still a major factor for real inflation), which would push stocks higher.
Then there's the third possible outcome – the one fewer people are talking about. Warsh hikes, and the Fed's voting members signal that more are coming.
That's where the "dot plot" comes in. Warsh wants to do away with such "forward guidance," and has been successful in holding his cards close to the vest thus far. But the Fed is scheduled to release a Summary of Economic Projections ("SEP") tomorrow alongside its interest-rate decision.
If it does release this SEP, the Fed members' dots will show where each official thinks rates will end up. A quarter-point hike is priced in for tomorrow. But a hiking cycle hasn't been widely considered yet. If those dots point to 4.5% or higher, the stock market may have some moving to do, because old habits about these projections die hard.
The bet here, though, is one of the first two – that we're either looking at a market that chugs along or gets a fresh bullish tailwind, which means preparing for more gains in the AI boom and/or bubble-driven stock market. I say that because Warsh could offset concerns about a dot plot with his own views in tomorrow's press conference. His opinion matters most.
Meantime, even with AI company heads warning about "slowing down" this past weekend, we're not seeing a full-blown AI sell-off. It's simply a rotation into cybersecurity companies and software businesses. CrowdStrike (CRWD) and Zscaler (ZS) jumped 14% and 17% yesterday, respectively. Palo Alto Networks (PANW) rose 13%. And Okta (OKTA) – which, you'll notice below in our e-mail, turns up on today's list of Stansberry Research open recommendations hitting 52-week highs – gained 12%.
It appears folks are reading into what the AI CEOs said, and betting on security becoming more important... and drawing a larger allocation of AI spending. With OpenAI's and Anthropic's models going rogue and running attacks on other companies during tests this summer, that's a good idea.
Still, AI darling Nvidia (NVDA), which is down about 5% over the past month, was higher today, and is not far off from a record high.
The AI boom keeps on keeping on. That's not "giving" for now. Neither is the government's debt load, nor inflation...
But as we said above, something has to give eventually. You'll see the first signs in places beneath the mainstream headlines, like another Treasury auction that comes in ugly, like the $25 billion 30-year sale last month that led to Bessent announcing a "Treasury Twist." Or perhaps we'll see a month when core inflation climbs significantly, or a hyperscaler cuts back on AI spending plans.
But we're not there yet. That's why we keep coming back to the same advice for beating inflation – own hard assets you can see and touch, that can't be printed like dollars. We're talking about real estate, gold, and the right stocks.
But bubbles inevitably burst. You can prepare for that, too...
While the AI-driven bull market hasn't stopped yet... lasting longer than many people thought it would... there will come a time when it ends.
That's precisely what Whitney Tilson is preparing for. Whitney says the popular AI names are behaving like the dot-com darlings of 1999 – and it's time to buy a different, more obscure group of stocks instead. As he wrote in Friday's Digest...
While investors are fawning over red-hot AI stocks like Sandisk (SNDK), Dell Technologies (DELL), and [Micron Technology (MU)], they're completely ignoring a corner of the market where I've grown extremely bullish in recent months...
It's the same opportunity that helped me make my name on Wall Street back in 1999...
I feel like I've traveled back in time.
Big tech stocks have been driving the market. But it's time to prepare for a new group of unknown names to take the lead. And it could hand investors 1,000% returns.
Whitney shared much more about the strategy he's recommending folks follow in a free presentation he debuted just last week.
According to his research, the stocks that pass one particular screen have beaten the broad market going back to 1957. In a near-decadelong back test, they would have turned $100,000 into $1.1 million since 2017.
In the past 12 months alone, Whitney says these stocks could have doubled your money or better on 46 separate occasions. You can learn all the details in Whitney's presentation. He also shares his top buy recommendation, free of charge, and one stock to avoid at all costs.
If you missed it, you can watch a replay right here for a limited time.
New 52-week highs (as of 9/14/26): Dorchester Minerals (DMLP), Hagerty (HGTY), Brookmont Catastrophic Bond Fund (ILS), Match Group (MTCH), and Okta (OKTA).
In today's mailbag, feedback on yesterday's Digest about the "Guardians of the Frontier" – the AI-company CEOs who said over the weekend that the industry needs to "slow down" and welcome some regulation... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"It seems to me that it would be a fruitless endeavor for the government to try and marshal the direction(s) of the AI industry. It is moving too fast and, besides, who among us is smart enough to oversee the geniuses who are leading the charge? They should be held responsible for any of their product which grows into HAL. Life in prison, down to the lab manager level, would be a good deterrent." – Subscriber John P.
"Do you think the AI titans might think they're more important than, idk, God?
"How can AI kill humanity? Can it set off nukes, turn us all into homicidal maniacs? Shut off the food and water supply? It can't shut off the power. What about the plug, can it be pulled? There should be a big red button to press in case AI goes berserk.
"I'm old enough to remember how to survive without the internet, bring it on AI!" – Subscriber Ron M.
Corey McLaughlin comment: Yes, but who would control the "big red button"?
All the best,
Corey McLaughlin
Baltimore, Maryland
September 15, 2026
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