The Fed meeting and CPI
The base case: unless CPI comes in much milder than expected, the Fed leans toward a rate move at its next meeting. The commentary at the press conference may matter more than the move itself. At Jackson Hole there was no Q&A, so no follow-up questions were possible; this meeting will allow them. This meeting also brings an updated Summary of Economic Projections and the dot plot, which come out every other meeting.
What drives equity performance, based on history, is the speed of the Fed. Fast cycles, where they move at back-to-back meetings, tend to bring weaker stock performance over the next 6 to 12 months. Slower cycles - taking the escalator up rather than the elevator - bring much better performance. Right now we sit in the slower, less sustained period, which is a positive for markets. The projections may give a sense of the forward-looking speed.
CPI over PPI and PCE
Markets have been sideways and rangebound since late May, with heavy churn under the surface: rapid rotations and sector divergences. That backdrop likely holds. The inflation side of the Fed's dual mandate is now the main focus, so a CPI print could move markets more than PPI or even PCE, the Fed's preferred measure. Once PPI (today) and CPI (tomorrow) are in, you can map the components of each into PCE and get a better read on what PCE will show.
Watch the 10-year yield
Fed funds expectations matter, but the 10-year yield matters most to equities. Stocks and bond yields have moved back into a deep inverse correlation, which shows yields are moving more on inflation than on growth. That is where an equity strategist should focus.
How do you gauge interest-rate volatility - the move index or tape reading? Level matters for psychology, and 5% is the next key level for the 10-year. Beyond level, watch the correlation numbers on a rolling one-year and rolling one-month look-back; both sit in deep negative territory now. On any day, or run of days, with an outsized move in the 10-year, watch how stocks react to see whether that inverse relationship has firmed. Speed of the 10-year move matters more than level, and so far it has been fairly quarterly.
Fed reform under Warsh
Chairman Warsh wants sweeping changes to how the Fed communicates and operates, run through five task forces covering everything from which inflation measures to look at, to balance sheet management, to communication. Little concrete information is expected soon. There is buzz in Washington that Warsh floated cutting monetary policy meetings from 8 to 6 per year, but that is early-stage internal talk. He will likely be asked and will deflect. The task forces are expected to return recommendations at the end of the year, putting real changes perhaps three or four months out and possibly in place for 2027. Warsh dislikes the dot plot, so its future is uncertain.
The $5,000 proposal, debt, and midterms
The president proposed sending every American adult $5,000 if Republicans win the midterms. The math: roughly 250 to 270 million adults means about $1.2 to $1.3 trillion going out, and it is unclear where that money would come from. The national debt hit $40 trillion last month, and Congress would have to be involved. This reads as a headline-grabbing idea with little detail behind it, likely aimed at motivating voters ahead of a midterm that looks difficult for Republicans. Do not expect a check in the mail. Elections are just under two months away and campaigning will ramp up in the coming weeks.
Charles Schwab (SCHW) supplied the strategy and Washington analysis behind this outlook.
