Newsletter · · Ashutosh Agarwal

The Market Buried the Rate Hike but a Fed President Did Not - US Macro Recap - Week of September 1, 2026

US Macro Recap for the week of September 1, 2026. Podcast synthesis on BlackRock's Rick Rieder seeing core PCE drift to 2.5 percent, St. Louis Fed President Alberto Musalem saying he would have hiked in July, the immigration math that cut break-even payroll growth close to zero, and Walmart's weakest same-store sales since early 2020.

US Macro Recap

Week of September 1, 2026: The Market Buried the Rate Hike but a Fed President Did Not

For two weeks the loudest macro story was the one about gold, Bitcoin and a Treasury Department buying its own long bonds. Step away from that noise and a quieter, more useful argument was running underneath it, a fight among economists and money managers about the actual machinery of the economy. Their conclusion is almost the opposite of the panic: core inflation is quietly drifting down, the September rate hike everyone feared this summer is now mostly priced out, and the weak-looking jobs numbers may not mean what they seem to. The catch is that a sitting Fed official went on the record to say the crowd is wrong and he would have hiked already. Here is the week, sorted.

TL;DR

  • The desks think the hike is basically off, and they can show their work. BlackRock's bond chief says core PCE (the Fed's favorite inflation gauge) is drifting toward 2.8% by year-end and 2.5% next year, with core CPI already running near 1.6%. Moody's says the six-month pace of core inflation is the slowest since 2021 and "pretty consistent with the Fed's target." Goldman's Treasury desk says the market is now pricing a tiny cut at the September meeting, not a hike. The trade has quietly flipped from "how many hikes?" to "the labor market gives them room to wait."
  • One Fed president publicly disagrees, and explained exactly why. St. Louis Fed President Alberto Musalem said he would have voted to raise rates in July, because once you strip out one-off shocks, underlying inflation is running "between 2.5% and 3%, which is too high," and the real (inflation-adjusted) policy rate is still below neutral. His logic: "earlier, more gradual" hikes now beat "later, potentially larger, potentially more abrupt" ones. A real dissent, not a pundit's take.
  • Two things explain the confusing data, immigration and a splitting consumer. The reason weak job growth (payrolls actually fell 23,000 in the latest report) coexists with a steady 4.1% unemployment rate is that immigration has collapsed the number of new jobs the economy needs each month to essentially zero-to-30,000. And underneath a "resilient" headline, the low end is cracking: Walmart just posted its weakest same-store sales since early 2020 and said it can literally see shoppers pull back when gas tops $4 a gallon.

What's new

1. BlackRock's bond chief says inflation is fine, and the Fed does not need to hike to prove it. (Operator, runs real money.) On Wall Street Week (August 14), Rick Rieder, BlackRock's chief investment officer of global fixed income, laid out the calm case in numbers. Core PCE, he said, gets "around 2.8" by year-end and "2.5 next year," while core CPI is "running at 1.6… the last six months, 2.4," and stripping out shelter (rents) "it's actually running at about half that." Eight of the last ten core CPI readings, he noted, have been "0.2 rounded or below." His point about the Fed's 2% goal: "that 2% doesn't have to happen today… that is a long-run number," and the way to get there is not rate hikes but the Fed's balance sheet, since "raising the overnight funds rate, in my mind, is not a terribly effective way to bring that number down." Why it matters: this is the single most influential bond investor in the world saying the inflation scare is overdone and the Fed has better tools than hikes.

2. A sitting Fed president says the crowd is wrong, and he would have hiked in July. (Operator and policymaker, an actual FOMC voice.) On Squawk on the Street (August 20), St. Louis Fed President Alberto Musalem gave the sharpest dissent of the week. Cutting through the noise about term premium and growth, he said: "underlying inflation, once you strip out the supply shocks… is running between 2.5% and 3%, which is too high. We need to bring inflation back down to 2% over the next 18 months." He argued monetary policy is "neutral or accommodative here" because the real policy rate sits "below where the committee believes the neutral long run rate ought to be," and he framed the choice plainly: "earlier, more gradual interest rate increases are preferable… than later, potentially larger, potentially more abrupt increases." He also flagged a fresh risk, "another supply shock in the fall with a Super El Niño coming," and said households are straining: "We see households dipping into their savings… dipping into HELOCs and into wealth effects to finance consumption." Why it matters: for all the market's confidence that hikes are done, there is a live, on-the-record policymaker who thinks the Fed is already behind.

3. Immigration, not a hiring collapse, is why the jobs data looks weird. The most under-appreciated fact of the week: the labor market can look both weak and fine at the same time, and immigration is the reason. On InvestTalk (August 8), the hosts walked through it. Payrolls "fell 23,000 jobs" against an expected 80,000 gain, with the prior two months revised down a combined 103,000, dragging the three-month average to "just 20,000 jobs," yet unemployment actually ticked down to 4.1%. The reason: "our growth of new workers into the country is very, very low because of… immigration policy," so the population is "growing at about 0.1% year over year… basically flat. So you don't need a lot of job creation to keep the unemployment rate flat." Goldman Sachs's head of US Treasuries, Mike Mitchell, made the identical point on The Markets (August 14): payroll growth of "20,000 or 30,000 jobs a month" is "reasonably tepid," but "changes in immigration policy, as well as an aging population… you don't really need much in the way of job growth to maintain a steady unemployment rate." His blunt conclusion: "the job market is sort of not that interesting… It's all about the inflation data." Why it matters: it reframes every soft jobs print, because the number the economy needs just to stand still has quietly fallen close to zero.

4. The break-even math is now the whole labor story, and it is an immigration story. On Excess Returns (August 22), Charles Schwab's chief investment strategist Liz Ann Sonders put the number on it: the "break-even rate of payroll growth… most that I see from economists are somewhere between no payroll growth to, at best, 30,000 in terms of not causing an increase in the unemployment rate." She argued the immigration crackdown has "dented the beneficial demographics… by not just reining in immigration, but sort of putting it off at the knees," and pointed to the long-run squeeze: in 1960 there were "six workers for basically every senior," but by 2030 it will be "two and a half workers for every senior." Small businesses feel it now, since in the NFIB survey the top problem has shifted from inflation to "quality of labor." Her warning: "stop doing apples to apples comparisons on… the size of the labor force relative to the past five years… we have just completely changed the math." Even Treasury Secretary Scott Bessent leaned on the same idea on Squawk on the Street, spinning it positively: "the jobs that we're seeing are going to Americans. After the deportations… and the closing of the border… we don't need to produce as many jobs." Why it matters: the same immigration policy that helps hold inflation down (fewer renters, less wage pressure) is also what is making the labor market look fragile, two sides of one coin the Fed has to weigh.

5. Underneath "resilient," the low-end consumer is visibly cracking. On The Canadian Investor (August 22), the hosts dug into Walmart's fresh results and found the clearest read on the US shopper anywhere this week: comparable sales (sales at stores open at least a year) came in at just 2.6%, "the lowest level… since January of 2020 quarter." Walmart told investors it "can actually tell when the gas prices are $4 a gallon or more" that "people are substituting, spending less," and said it launched an 11,000-item price rollback in July precisely because "they could see the consumer was slowing down and… the money run out from those tax refunds." Groceries are growing "mid-high single digits" while everything else is "low single digits," meaning people are buying essentials and skipping the rest. Home Depot and Lowe's US sales were "really weak," positive only because of Canada and Mexico. Peter Boockvar, CIO of One Point BFG Wealth Partners, gave the same picture from the top down on RiskReversal Pod (August 17): wage growth is "moderating to the point where it's growing really no more than the pace of inflation," so the average consumer is "on this hamster wheel… running to stand still." He flagged a striking data point, that in the University of Michigan survey the share of people who believe their income will beat inflation over the next five years was "the second lowest dating back to my Bloomberg data in 1998." Why it matters: "resilient consumer" is a top-line average; the distribution underneath it is splitting, and Walmart's checkout data is the tell.

The debate

Boil it down and it is two well-supported camps arguing about one question: does the Fed have room to sit still, or is it already behind? Unusually, the people running money were mostly on one side and a policymaker on the other.

Camp A, inflation is cooling and the Fed can wait (the operators and forecasters, and it is the crowded side). The steel-man: strip out the one-offs and underlying inflation is drifting toward target, so the Fed can lean on the balance sheet and let the weak-but-stable labor market buy time. Rick Rieder owns this case with the hard numbers (core PCE heading to 2.5 to 2.8%, core CPI near 1.6%). Nationwide's chief economist Kathy Bostjancic backed it on Bloomberg Surveillance (August 19): "aside from energy and aside from the AI buildout, we're actually seeing signs of disinflation both in the service sector and the goods sector," with Q3 GDP running "somewhere between 2.5% to 3%." Moody's Mark Zandi and his team on Moody's Talks, Inside Economics (August 14) added that the six-month pace of core CPI is 2.4%, "the slowest since 2021," and, adjusting for how CPI runs above the Fed's preferred gauge, "pretty consistent with the Fed's target." Andreas Steno, who runs a macro trading book, went furthest on Real Vision (August 17), predicting a "Goldilocks" fourth quarter that leaves the Fed "wrong-footed" and forces a dovish repricing. And Goldman's Mike Mitchell noted the market has already moved that way, with the September meeting now pricing a small cut ("9 basis points"), not a hike. The soft spot: this camp needs the coming inflation prints to keep cooperating, and energy is turning against them.

Camp B, underlying inflation is too high and the Fed should already be hiking (a Fed president and a couple of strategists). The steel-man: the "one-off shocks" excuse has been used for five years, the economy has no real slack, and waiting just means bigger, uglier hikes later. This camp's anchor is not a pundit but Alberto Musalem: underlying inflation "between 2.5% and 3%, which is too high," real rates below neutral, and a preference for gradual hikes now. Ed Yardeni of Yardeni Research, on Wealthion (August 11), agreed on the policy even while calling the economy "bulletproof": "I think they should move in September. A quarter point is going to do more for their credibility than it's going to hurt the economy." And RenMac's team, on RenMac Off-Script (August 14), said flatly, "I think the bond market is underappreciating the risk of a hike in September," arguing "every meeting should be basically a coin flip." The soft spot: even this camp concedes the market's inflation expectations are anchored, since Musalem himself said the recent bond selloff is "mostly term premium rising," not a fear of runaway prices, which makes it hard to justify hiking into a slowing consumer.

The wildcard both camps are watching: energy and the low-end consumer. On energy, Moody's warned the August inflation print is set to reheat: gas averaged "$4.10 at the end of July" and has stayed above $4 into August, so CPI energy "is going to show an increase" in a month that "seasonally" declines. On the consumer, Walmart's data and Musalem's households "dipping into savings and HELOCs" point the same way. If the low end gives out, the Fed's next move is a cut, not a hike, and both camps get overtaken by events.

The trades in play

Operators positioning real money:

  • Own quality bonds, keep it boring, let the balance sheet do the work (Rick Rieder, BlackRock). Rieder described his approach in fixed income as building "a portfolio… that is as boring as possible… as stable as possible," leaning on high-yield and securitized credit for income, with the view that the Fed should manage the long end of the curve with its balance sheet rather than rate hikes. His framing of the AI supply wave: there was "$673 billion of US Treasury debt" issued in a single week, "it's like issuing Indonesia in a week," which, alongside AI-related bond supply, is what is pushing real (inflation-adjusted) yields higher.
  • Watch the 30-year for the pain threshold (Ian Lyngen, BMO). On Bloomberg Surveillance (August 19), BMO's head of rates strategy said the surprising thing is that stocks keep hitting records with 30-year real rates "above 3%," and put the danger line at "3.50," adding "I suspect that's when you start to see some ramifications for the equity market, like Dow down 3,000." His base case into September: "the path of least resistance is for no hike," but he warned the idea that the market can do the Fed's tightening for it is "somewhat circular… eventually the Fed will need to hike."
  • Short the dollar, lean long risk into a Goldilocks Q4 (Andreas Steno). Steno said being "short the dollar" has been "the right lean," and expects a low-inflation, recovering-growth mix that "could lead to euphoric market trends," a weaker dollar with "a load of repercussions… mostly positive for the global financial markets."

Read-throughs

  • The August inflation print is now the swing factor, and energy is turning the wrong way. Camp A's whole case rests on cooling data, but Moody's flagged that gas back above $4 will push August CPI energy up in a month it usually falls. Boockvar's reminder that wholesale prices (PPI) are running "well above CPI," and "somebody has to eat that," is the mechanism by which a hot energy month could bleed into the core.
  • AI capex is now the load-bearing wall for both GDP and the bond market. Liz Ann Sonders sized next year's hyperscaler (big-cloud) capex at roughly "$900 billion," a figure that "leapfrog[s] over anything that happened in the late 1990s," and, crucially, said that unlike the dot-com build, "the build is associated with current demand, and it's undershooting current demand." The flip side is concentration and financing risk: NVIDIA alone is "18% of overall S&P 500" earnings growth expected in 2026, Micron another 14%, and the top ten stocks are "65% of overall S&P 500 earnings," increasingly funded by "massive debt issuance." Rieder's "$673 billion in a week" is the same story from the bond side, since the AI build is now competing with the Treasury for the world's savings.
  • Imported-goods prices are the tariff-and-AI inflation channel to watch. On Marketplace (August 19), import prices excluding energy rose "4.5%… the biggest year-on-year increase since 2022," with imported computers up 17% over the year. Wells Fargo's Sarah House called it a sign of the "insatiable appetite for all things related to the AI buildout," noting that even at the peak of post-pandemic supply stress, computer import prices rose "only 4%." KPMG's Diane Swonk framed it as "an early indicator that there's some global pricing pressures out there," before tariffs are even applied. It is a slow-burn upside risk to the disinflation story.
  • The consumer is the real economy's fault line, and it is splitting by income. Walmart's weakest comps since early 2020, Boockvar's "running to stand still," and Musalem's households "dipping into HELOCs" all point one way at the low end. Yet Bessent insists "the bottom 25 percent of Americans get good wage increases" even as "top earners" lag, and Ed Yardeni reframes the whole thing as a "G-shaped economy," generational, with cash-rich retired baby boomers (sitting on "almost 100 trillion dollars" in net worth) doing the spending and younger people locked out. Same data, three very different stories about who is actually holding the economy up.

What changed

  • From the debasement trade to is the hike actually dead. The prior recaps were about gold, silver and Bitcoin. This week's conversation was economists and bond desks arguing that core inflation is drifting down and the September hike is largely priced out, with Goldman noting the market now prices a small cut for September.
  • A real Fed dissent got a name and a rationale. Last week the hawkish case was made by a former Fed governor. This week a sitting Fed president, Alberto Musalem, went on the record with the exact numbers for why he would have hiked in July, a far more concrete hawkish anchor.
  • Immigration moved from a footnote to the center of the labor debate. Prior recaps mentioned it in passing; this week it became the whole explanation for why weak payrolls sit alongside a steady 4.1% unemployment rate, with a hard number on the break-even payroll level of 0 to 30,000 jobs a month.
  • The consumer split got specific. This week the low-end weakness showed up in a single company's checkout data, Walmart's weakest same-store sales since early 2020, against a policymaker's claim that the bottom 25% are still getting raises.
  • Energy quietly flipped from tailwind to risk. Recent recaps treated the energy spike as fading; this week Moody's flagged that gas back above $4 will push the August inflation print up in a month that usually cools, the first crack in Camp A's cooling-inflation story.