# The Economy Won't Cool, and the 10-Year Broke 5% - US Macro Recap - Week of September 25, 2026

> US Macro Recap for the week of September 25, 2026 (podcasts recorded roughly September 19 to 25): flash business surveys blew out to the high 50s, jobless claims hit multi-year lows, and the 10-year Treasury pushed past 5% to about 5.14%, while the doves shifted from arguing the economy is weak to warning the Fed is hiking into an energy shock and an AI build-out financed with debt.

## US Macro Recap

### Week of September 25, 2026: The Economy Won't Cool, and the 10-Year Broke 5%

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On Tuesday the argument was about how many more hikes the Fed needs: its own forecast said one, the bond market said three. Since then the economy has weighed in, and it sided with the bond market. Business surveys came in much hotter than expected, weekly layoff claims are the lowest in four years, and the 10-year Treasury yield pushed through 5% to its highest level since the 2008 financial crisis. The dove case is still alive, and it got a heavyweight new supporter in a former Fed president. But this week the doves were mostly arguing that the pain is coming later, not that it has already arrived.

## TL;DR

* *The data ran hot and the bond market broke out.* Flash purchasing-manager surveys (monthly polls of company purchasing managers, where 50 splits growth from contraction) jumped to 58.7 for services and 57.0 for manufacturing. The 10-year yield rose 16 basis points in a day and touched about 5.14%, and the odds of another Fed hike as soon as October went from about 50% to about 70%.
* *The labor market is strong, not cracking.* Initial jobless claims fell to 196,000 and continuing claims to about 1.73 million, the lowest since January 2024. On a non-seasonally adjusted basis, claims are running 12% below the 2018–2019 average for the same week. The argument for an early Fed pause because jobs are weakening has lost its footing for now.
* *The doves' new argument is "later, not now."* Goldman's Robert Kaplan says markets are pricing too many hikes and that two in total, taking rates to 4%–4.25%, gets policy to neutral. Jeff Snider points to a yield curve that has flattened to 20 basis points as the market starting to price the slowdown after the Fed is done. Hanging over both camps: Washington is reportedly weighing a 90-day ban on diesel exports.

## What's new

*1. The business surveys blew out, and the bond market sold off hard.* *(Insider: bank FX and rates strategists.)* On [NAB Morning Call](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOi3uOiYixHh1AXcVS8kcTDYUTtQG4YXuta3z1UWr242RT4eWNI04adFFM-2BsHgWKmi72Hd2aZY4-2FLQ3aadBiGEwCFstklfCJpzvYTuLwk-2Bp8sg-3D-3Dg0ki_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQfyGrmm2DKQGC4qG-2Fd-2FaVUSeO-2B81ShhIC5IUnA57BLgE3FmfPK6zPZ-2Fi3G6epRZe2PNfuVsaKbv6EW3MaC5GVnG582Zu3LKU9RDUsql0gM7G3r27u1wTuY23DW-2B11tSGKWQ-3D-3D) (September 23), NAB's Ray Attrill said the main cause of the selloff was the US flash surveys, not the Iran headlines. Services rose "up to 58.7 from 55.8, manufacturing up to 57 from 53.7," and the commentary with the numbers was "talking about supply bottlenecks, price pressures, difficulties finding labor and lengthening order backlogs." Ten-year yields rose 16 basis points. The Atlanta Fed's live GDP estimate was "already pegged… at just north of 5%" before the surveys came out, and Fed Governor Barr said further hikes should be expected. Pricing for a hike at the October meeting, "a week before the midterms," rose "from just over 50% to closer to 70%." The next morning on [Saxo Market Call](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjaegY0HFtryqr-2FIM2r-2FdxeJAwQliC8Ws5-2B-2BwisLADdiZ3XZRzMZkLWSsxPTpk-2FPvz-2FV-2BTHzuPP0wOnnNGvX6KSWuEbSPhP2OvuGX6aRfDWQg-3D-3DSqe6_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf7ogKqjOAbhkTi8XUSTOwSkBUvomWozhvRKuk9VUi-2BZ8QEPmlIlFs0Vf-2BKYkkdUy3yPxK008TTWVcWtoOPsSarKMwayOK4klcRsjLh7EwgCRTxPSFAG6RS0alpBmwi7Fqw-3D-3D) (September 24), Saxo Bank's John Hardy said the bond market was "in meltdown mode." The 10-year "tested about 5.14%… the highest level, of course, post global financial crisis and by a significant margin," and the 2-year got to within about 10 basis points of 5%. A five-year Treasury auction drew bidding so weak that one person he respects was "essentially calling it a failed auction," the worst since late 2018. *Why it matters:* the "one more and done" hope from Tuesday now faces growth data that points the other way. The fight has also moved from the short end of the yield curve (short-dated bonds, which track Fed moves) to the long end (long-dated bonds, which reflect growth and deficit worries).

*2. Weekly jobless claims hit multi-year lows.* *(Insider: money managers.)* On [Facts vs Feelings](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjzGdxTVAo4JsiAbv-2B5r0Xz1xtrMzrPSyrIuAgaXdf0QcHir05QZtf0zcVeMAub57TYBgYviYF32wppcWeor8Ep5Y7V6NnEcmO8QoaI7oIpvw-3D-3DC63Y_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf7SQOPC-2FxL-2FIphOC1izL-2Begh4kRjSdp8-2FtuEE5Yh5-2F-2FcgKIKjAz4dcHbV7KAv6ZgWTDBgI-2FJTRJm9z-2FuwvIOCVdYaY5eoznBMWm1xVRyWhvmUFAfMBYmQnWJR7O2XcrVUw-3D-3D) (September 23), Carson Group chief macro strategist Sonu Varghese went through the numbers. Initial claims (new applications for unemployment benefits) "fell to 196,000 for the week ending September 12th," with the four-week average "just over 200,000." Without seasonal adjustment, "claims are running 12% below the 2018-2019 pre-pandemic benchmark… the lowest weekly print we've had since 2022." Continuing claims (people still collecting benefits) "fell to about 1.73 million… the lowest level since January 2024," 10% lower than a year ago. His verdict: "AI is not killing jobs yet." The mortgage capital-markets team on [Optimal Insights](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjr8yK8QG-2ByFOm2UuWGJmpTfn6Z00L-2FDTKgh3ghOBryTeYd-2B6ngaEjw6ENa9PBKAh1ab3-2FYLyvm32xoNgplWVTALaHGC8XkOvCe55j3PwGpJg-3D-3DRRjK_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf95cGkLvW52sGQDMrCunxnb7htxd5idDI2l5M-2FHdrXpLYVw6bOZQsTm3eonePAid0xKTs4GZKmAh809X4Zji6Hpo4YPrnI-2Fu3-2FrqNojO1ncM71uCPaFHDflFUy1Xha66lw-3D-3D) (September 22) made the same point, noting claims came in "190-ish" against an expected 205, "pouring cold water on the argument that rates should be lower." *Why it matters:* a year ago the Fed cut three times to protect the job market. Those worries have now largely gone away, which removes the strongest argument for stopping early.

*3. A former Fed president says the market has gone too far.* *(Insider: former policymaker, now at a bank.)* On [Exchanges](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOivS29reuEX2R0sfP4Qa8rINdMheGSWWZ28-2BpX244KZVDBkeojsesxNw3zL8pGFo2D0rNu8OoalkO2sKug0vayBI8RYj4wTgGgYCmqyiqbIaQ-3D-3DnPAY_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf8CQzn-2Fc2aVUgnhRiolAzTpaqtaPNNwgHBiOB-2BzJyC9fAZEdbbr88EEJWTZs9rCH2uoDXJdDwSP0oUJtNLbsmQY0CMYT3Av-2F-2BfSXrG5HnBJDyIXvICKu86n9sg6Xo5JiJQ-3D-3D) (September 23), Goldman Sachs Vice Chairman and former Dallas Fed President Robert Kaplan backed the September hike. The problem was not the yearly inflation number in "the mid threes," which reflects oil going from the $60s to close to $100. It was the month-to-month pace: "even month over month, we're still running closer to 3." His plan: "skip October," hike again in December, and then take stock. "Two moves resonates with me, that gets you to four, four and a quarter," which he thinks is about neutral (the rate that neither speeds up nor slows down the economy). He believes the market is "expecting more hikes than… is likely," and is building in "a risk premium" for an unclear Warsh playbook and a war that could drag on. His key point is that the Fed's one tool "is not going to slow down the AI infrastructure build. It's not going to slow down defense spending." The pain falls on businesses that borrow at short-term rates, such as homebuilders "who are struggling to sell… but they finance their inventory based on short term debt. So they're getting squeezed." *Why it matters:* this is the most credible insider voice so far arguing that about 50 basis points of the market's hike pricing is excess.

*4. Diesel became a policy fight: Washington is weighing an export ban.* *(Analyst and bank strategist voices.)* On [NAB Morning Call](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOi3uOiYixHh1AXcVS8kcTDYUTtQG4YXuta3z1UWr242RT4eWNI04adFFM-2BsHgWKmi72Hd2aZY4-2FLQ3aadBiGEwCFstklfCJpzvYTuLwk-2Bp8sg-3D-3DAVPb_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf9yZZvOjwnaUMDZQGB3L9i-2BEccT9DPM2ESJPP1LyIeA8x3ybqWCMykGSMbo2eQbqPfab-2BWTZgToiXd-2BrWinnHZwzv-2FRyETIdt2bni6ITcxQU79JFNr5RfwdsnrGE0Hjllg-3D-3D) (September 23), Attrill cited a Politico report that "the US is preparing to ban diesel exports for 90 days." Brent rose several dollars to near $104 while US crude (WTI) lagged. The crack spreads (the margin refiners make turning crude into fuel) "are continuing to blow out to the highest they've been effectively since the crisis began." On [Macro Voices](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOhPaIHAYbdwMyRD80RYxpj2zTiyYaAgLQQV2-2BWKCAcIm3tw4G20wy23auH17f73KCgg6l2PsZUl1XtQJP3vPPXRto6JY87dlg-2B2FtSc-2F5mmfw-3D-3Dc8se_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf8LhQw1scUQ8V2qsYtrVa47Z7lfNZZyh5U6ePV8bVXxlAFrk9Ye1aEHcRcDBiHpE6A2r84GHLhaTsrg7fBXw0A-2B29GQHyQ0GGBscHtbJRc1-2FCVfcy1BN6E3xV51UdBmYUA-3D-3D) (September 24), Rabobank global strategist Michael Every said that "if you're an interest rate trader or an FX trader at the moment, you have to be an oil trader." He also offered a less obvious reading of a ban: Europe, which would lose the most diesel, might then pressure Ukraine to stop hitting Russian refineries, pushing toward a settlement rather than escalation. On [Optimal Insights](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjr8yK8QG-2ByFOm2UuWGJmpTfn6Z00L-2FDTKgh3ghOBryTeYd-2B6ngaEjw6ENa9PBKAh1ab3-2FYLyvm32xoNgplWVTALaHGC8XkOvCe55j3PwGpJg-3D-3DD9S5_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf0fDDCS-2B5rP-2F2WfKKydWWRewZV1UZHAMh7wDlrNRwAdcNz6N0pPoLOCPHf1paNc5jNIJwsJ7k0ATCS5bdwWROW-2FR-2F06iLqpHi7YiBXyUFXBwRQCOGVMxOvZstAZ-2Fmgoc1g-3D-3D) (September 22), the team noted diesel "risen about $1" and gasoline "40 cents over the past month." They warned the end-of-month PCE inflation report (expected at "mid-three, three-four") could surprise higher, because September's inflation readings were collected during a temporary deal period and "energy prices rallied near 20%" after it expired. *Why it matters:* the Fed can't make more diesel, but the price keeps feeding into the inflation reports it has to react to.

*5. AI capex is now the main driver of growth, and it's paid for with debt.* *(Research strategist and venture investor.)* On [On The Tape](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOgmrNVpYj9LRXwjwImgtLmoKCh7bQ46WBa45IjyrJ0buOnmoitpMBiYkEXcRwe5nVt5rm32Osj2qYdSg6BxV2UM54N1AYm4M6Xdo8pa3Vzrig-3D-3DpRxf_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf-2FLb5DxnVZVMxWwe1WQI5E7p5P0Qz5yWGYfaZcYDaN0FjJaX2EyR3PkyfYVoZKMmbzyyWr92vgJSi9274gcSSQlPZ-2Ftxi3TNO4oIiRJRV3Xb2-2FISueZitiRySiR7ME-2Bz4w-3D-3D) (September 23), 22V Research's Dennis DeBusschere broke down the 5%+ GDP estimate. Real consumer spending is tracking "three to three and a half percent" while real income grows only "one to one and a half," with the gap covered by consumer net worth rising "$12 trillion" in the second quarter. On top of that, "AI related CapEx… contributing 70 basis points to 100 basis points of GDP growth." He cited SemiAnalysis's estimate of "$11.5 trillion" of cumulative AI capex through 2030, "$7 trillion of which would be debt financed," which he says is good for "at least 1% to GDP growth for the next three to four years." On [Between Two COO's](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOhYjJDwruxwdiRJEHVjjOHFOKjq33K-2Bav1l6ukU1oit2X-2BgdEPq93v5tvbkdKVGgUblKdRo-2F-2BA0npXCOR8pzA8WP62ZCAfVShDSHp4V1gfnhg-3D-3DgbOC_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf7w18OolYBGa585nrcoEevJTfptYYxmlyqRLMAb9Czt5Za6SdwtHHG3w5X5GsJKWtpa2m-2BbNPZHpSfegF5fAzTVa5YpLd4y0s-2FAAc-2B9pDATq6Oi5m92kLonplNSJsTQ8Pg-3D-3D) (September 22), SK Ventures' Paul Kedrosky took the same facts in a darker direction: "anywhere from 30% to 70% of US GDP growth was being driven by a single thing," and "more than 60% is coming from… external financing," meaning borrowing rather than cash flow. "In about 2029, we'll hit a maturity wall." *Why it matters:* both bulls and bears agree the growth is real and runs through AI. They disagree on whether that makes it durable or fragile.

## The debate

Both camps showed up with real arguments this week, so both get built out. There is also a third view the data now supports: an economy running above its speed limit, not stalling and not gliding to a soft landing.

*Camp A: Reflation. The economy is too hot and the Fed is behind.* *(Mostly insiders: bank desks, a research strategist, money managers.)* The strongest version came from DeBusschere on [On The Tape](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOgmrNVpYj9LRXwjwImgtLmoKCh7bQ46WBa45IjyrJ0buOnmoitpMBiYkEXcRwe5nVt5rm32Osj2qYdSg6BxV2UM54N1AYm4M6Xdo8pa3Vzrig-3D-3Diwuc_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf3xeAtbUQugFNgRIofODNswSDDRzanLbeGk7zfQxdmUKbYhCFqCNTHc8aRPD6WIxNg5SzfisJm9n6B9-2BU9wOXryhE-2B-2FjYacJeYxuslvk0mrJWYvWi2NJa6ZTq3JGa-2FEZ9g-3D-3D). The US "can only really grow at 2%. And that's your speed limit because productivity growth is 2% and we… don't have any labor force… growth." Growing faster than that "at full employment, when inflation is above target," means strong data leads to "tighter financial conditions. And higher 10 year yields. You will not see higher equity prices." With nominal GDP (growth before adjusting for inflation) near "6.5% and doesn't appear to be slowing," he argues neither the Fed nor the Treasury can hold yields down for long. He says he is "rooting for AI to take more jobs" because the economy needs more labor supply. The data is on this camp's side this week: surveys at 57–59, claims at 196,000, and the Fed's own projections, which Varghese on [Facts vs Feelings](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjzGdxTVAo4JsiAbv-2B5r0Xz1xtrMzrPSyrIuAgaXdf0QcHir05QZtf0zcVeMAub57TYBgYviYF32wppcWeor8Ep5Y7V6NnEcmO8QoaI7oIpvw-3D-3D-Tox_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf22bPXNcXlkf32mZYKw19ZyB3BpdbW49mkEKFxB4d1ixKRizyBhjjdtc9p3utYIgLrTnKcO6ufERXF3rkwm8xX380Ld7xxUNfrpuScML8eK4QxsjkXlk-2F3QtFO5EGtSkvw-3D-3D) compared with June 2025. Growth for 2026 is now 2.3% versus 1.6% then, unemployment 4.1% versus 4.5%, and core PCE 3.4% versus 2.4%, yet the Fed's policy rate is only 4.1% versus 3.6%. His conclusion is that the Fed is barely pushing back against a much hotter economy. At the far end, technical analyst Jay Woods on [Facts vs Feelings](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOhkGiXsDBfE7h1r30SquvCkXjTn8gYUp5Agx-2FDbHlxRUVFClfxcKEIBL-2BVC3lhp-2BL6RKNb0zpYfCkGzIN84o3QxU7kuEJ0CRqplKQRmcXnlkw-3D-3DKwMV_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf3nNczAhF76Dy8440msVDzfYaAAWXqUQwCSmYZNbCRYgJK8pV0X8AqendZwZftzR-2FOJpIpc7bILbliUVFgwMGSqRXcyKt0ue9vPIgBW4y3KTYc1voSgo1shepsNkoLcjwA-3D-3D) (September 21) said rates should probably be around 6% to really bring inflation down.

*Camp B: Stall speed. The damage shows up later, and the Fed is hiking into it.* *(A mix: an ex-Fed insider, a macro fund strategist, and commentators.)* Kaplan ([Exchanges](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOivS29reuEX2R0sfP4Qa8rINdMheGSWWZ28-2BpX244KZVDBkeojsesxNw3zL8pGFo2D0rNu8OoalkO2sKug0vayBI8RYj4wTgGgYCmqyiqbIaQ-3D-3DO2iv_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQfzVCkw4awGkbt-2BG5uqsZ9UZaN-2FAsZVgl2vDZ3b8xh5ckyl6xMP2D86UOQqhmX2b-2BynR1OoKH43m94-2BKJVTTWqbTq86qDFEZu66sLZ5uHDfl3StOjW-2FDT4mrxWJtMm4O9Aw-3D-3D)) gives the mild version: the rate-sensitive parts of the economy, "autos, housing-related companies that sell to low-moderate income consumers," are "pretty sluggish or weak," so two hikes are enough. Clocktower Group's Eric Wallerstein on [Monetary Matters](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOi0Aoz5wZkBOzUzAgam38h9h-2BMlqlJMjlAXsYT72Vh91Nie1CPPMKuYhDOPm-2BQHaiS-2F1GAYXpqZpLHu9rCHjgmC-2BV3izm2VLfTcgXIjASotMA-3D-3Dr1pR_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQfy-2BkruN-2BZbCOzDMaa2L6zybWkDChLnMzRtKPewdHXxhwsoV3It11F2o9oNOAXbjHdBoNfmPUwZfaKEs3mvHqUw-2B1s7m1mdAZAx4pk3gkXZ-2B1O4BX9sEbKVzwwjw8GCAsTg-3D-3D) (September 23) gives the sharper one. "Without AI, more people would say that we're like in substantially restrictive territory," meaning policy is already squeezing the economy. His evidence: nominal wage growth is "decelerating pretty rapidly," and nonresidential construction has been "falling at a negative 5% annualized pace every quarter since Q1 2024. We can't build anything that's [not] a data center." His worry: "If we hike like three times and the labor market starts coming unglued, lo and behold, neutral did not rise that much… That'd be an early policy mistake." And "labor market cushions look really thin." Jeff Snider on [Eurodollar University](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOhbX3vQePvta0HWoT7VwqUHsH6JAr2eBGhF97N3d1CiChIhGV1DBW0IWThvo8qIOHxQ-2BPflXd0XzQMN3l0aFKm4DFNopdsV9075jr7An8hMXA-3D-3Dgu1n_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf8oVvObJZ-2FCxfYjtPX03dyUTL8QcXI6Oq3r4u0XDs-2BxCnhcC4rksMeEf2qhURyyNM3EPRpnunolGZhNjTZ7t-2BnMbA7mXRXO62QGVbDGNb-2BOQQ6FdLdiz25L5W8j1v-2BfDXQ-3D-3D) (September 23) reads it in the yield curve: "The front of the curve sees the Fed. The back of the curve, that sees demand." With the 2-year/10-year gap down to 20 basis points, "the next big move in interest rates may not actually be higher."

*The honest read:* this week the data favored Camp A, and Camp B's best arguments are predictions. Camp B is still worth taking seriously for one reason: the doves no longer say the economy is weak today. They say the Fed is tightening into an energy shock, a thin labor cushion and an AI build-out paid for with debt. Even DeBusschere, the loudest reflation voice, made a contrarian call. Investor surveys show the most hawkish sentiment "since actual inflation was close to 9%," so "we're going to have dovish data galore for the next three months… 10 year yields back at 4% by Christmas Eve."

## The trades in play

*Operators putting real money to work:*

* *Own the short end of the Treasury curve and wait for the break (Michael Pento, portfolio manager).* On [The Julia La Roche Show](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOhfV0rO-2BSIdn2j7dtGnt0y5k5noh5DSKxUpiyJX9R-2BXuUmCFAXFyro5-2FGyXsK1qFMsLt1gPLwARCv54I0441BKKplvCJ5MK1IShOCNuIOZWZg-3D-3D8-_J_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf-2BBSjkwC1Ic0EWjmnJHHxAfiiv2LcLysMr0AEfmfVMisohL6wUDnHWDqPtv8Zar6to9t-2BCjGb6c8XcXhbLnBFgGP9vd-2Ba5tNjbZj8wtKBOb2l5b6Ky36RdYb0pN5NZIpXg-3D-3D) (September 24), Pento said he is "heavily sequestered in the short end of the yield curve," one to three years. His reasoning: "the short end of the yield curve has already priced in three to four rate hikes," and "if the economy breaks, he's going to be cutting from… four, four and a quarter percent back down to 1%." About 10% of the portfolio is in precious metals (physical and miners). The rest includes international and domestic dividend payers, a long/short Nasdaq momentum ETF, and about 5% in CTA (trend-following futures) hedges. He is still net long stocks because the credit spreads he watches say big players are "not worrying yet."
* *Stay overweight tech (Carson Group).* On [Facts vs Feelings](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjzGdxTVAo4JsiAbv-2B5r0Xz1xtrMzrPSyrIuAgaXdf0QcHir05QZtf0zcVeMAub57TYBgYviYF32wppcWeor8Ep5Y7V6NnEcmO8QoaI7oIpvw-3D-3DLSbm_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQfzEcmwUKiLbIvyNJR4MCXd8-2Bst-2F1YKkIhDdOxis9zZP9id2cqYE1FeJboSg2leFnJ-2BA7-2B1PEAYRsaxY-2FXpnIs64nlBpBEtlS9gGoirydNZb9glT9zj5nJ3HPBE4AxwFmKA-3D-3D) (September 23), Ryan Detrick and Sonu Varghese pointed out that since Warsh's hawkish Jackson Hole speech on August 28, the S&P 500 is up 1%, tech is up 5%, communication services up 2%, "every other sector is negative." Tech and communications together are about half the index, so "we better own that stuff." Varghese's macro view is that the Fed would only be truly hawkish if it tried to slow AI capex, and it signaled "nothing" of the kind. They flagged financials and transports as lagging.
* *Go to intermediate Treasuries plus real assets (Alicia Levine, BNY).* On [Bloomberg Intelligence](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOgkOtB9obiB7TecvfgbOh5D6E3O0TIrkrFgdbqtzJNltM5AvaduQW-2B9rBQF0f2E2yRBxhEykwGBEo1Jw5w6CAzrrZemszyLHKmtzSSt7kWtEA-3D-3DQ_Mr_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf4eLVnWASwaqy8VEDkmaONnOxmhLPLZ2cltPgm5vbE93l7RjNoGgCnKUssXuntUjfziHRRiNbqjA1UStKEF9zRmfWIGYRJYJAExAKowQX9onT7gEBBYObNapp5cXSTH9Uw-3D-3D) (September 19), Levine favored the belly of the curve (five- to ten-year Treasuries) over long bonds. She paired it with real assets and infrastructure as inflation hedges, since reshoring keeps inflation pressure around that central banks can't fully suppress.
* *TIPS yields as a warning on the cost of capital (Sean Dobson, CEO of Amherst).* On [The Walker Webcast](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOj9j-2B9NB-2BRrhwTg2a1ccMIy-2BpO9mEYWrJymVB-2FnVafpYnxwNsoBk0TsSgorr0Wy2uWWqVEo2PegHVK52fbr6FundyvK0JIErYSxxnhxZOrMiw-3D-3DOqV8_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf-2B8HshoCIpPmvN67CO-2FCriZ-2FA32jdDY5CB0PcoqunJhYYsb9A7Hz-2BPvjQzqflrjuoY0wT2Yyo-2FN5Aabf9vv-2FhKv07gxCfQS9WP0BeFI86wFxbNctxKcZ-2BQBbzJ9RPY6Q3w-3D-3D) (September 24), Dobson said Treasury yields are now "inflation plus 2.5. They used to be inflation plus 1." That "100, 150 base points of tax that every bond has in it is the problem." He reads the high real yields on TIPS (inflation-protected Treasuries) as a jump in America's cost of capital that will slow growth, and says "raising the nominal rate is not going to help." He isn't widening credit spreads, though, because "the credit risk in the U.S. economy is not that great."

*Strategist views on instruments:*

* *Dollar up, risk currencies down (NAB).* Attrill on [NAB Morning Call](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOi3uOiYixHh1AXcVS8kcTDYUTtQG4YXuta3z1UWr242RT4eWNI04adFFM-2BsHgWKmi72Hd2aZY4-2FLQ3aadBiGEwCFstklfCJpzvYTuLwk-2Bp8sg-3D-3D05jq_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQfx7qhLw6CXNXci8fSOO-2FlWeKYhJocCMjd9iCZT-2BV3dNY-2FNVF4UDwWq2T4hJYEk0lhqwFHjip0IGCEHKmDLHogzaoD1sBlSFQygqJXwjyC073U4yFAfRqp4Fs1PJ-2B4dbK6w-3D-3D) put the dollar's rise (+0.5%, Australian dollar −1.1%) down to "the increasing belief that there are at least one and potentially more than one Fed rate hike" to come, plus "the familiar narrative about exceptionalism… the US is pulling away from the rest of the world."
* *Watch for intervention, and the dollar reversing if it comes (Saxo).* Hardy on [Saxo Market Call](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjaegY0HFtryqr-2FIM2r-2FdxeJAwQliC8Ws5-2B-2BwisLADdiZ3XZRzMZkLWSsxPTpk-2FPvz-2FV-2BTHzuPP0wOnnNGvX6KSWuEbSPhP2OvuGX6aRfDWQg-3D-3DDWur_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf0o4QXFQq7zHG5mh-2FXfKePrKfFQvLG-2BaaaDC39wZaYASfwB-2F7OMssD-2FI2k99rTqSQRfOltRjRLjZMoBXHt7R1Fkk4IGPOhHqHV5kiYqM-2BZp9d0OSJEuXcCKenQscXrwRMw-3D-3D) doesn't expect straight bond-buying (QE). He sees more likely options as "forcing pension funds into bonds," changing bank leverage rules for Treasury holdings, or tax changes for bondholders. His trading warning: a sudden policy headline could leave you "the wrong way around the dollar suddenly going weaker after heading stronger, stronger, stronger." He also noted banks are hurting as the curve flattens.
* *Oil and energy stocks (Jay Woods).* On [Facts vs Feelings](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOhkGiXsDBfE7h1r30SquvCkXjTn8gYUp5Agx-2FDbHlxRUVFClfxcKEIBL-2BVC3lhp-2BL6RKNb0zpYfCkGzIN84o3QxU7kuEJ0CRqplKQRmcXnlkw-3D-3DoZBU_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf9b771GI8Rfi07dOaHLmGEieiopFDJcZhhcaFgPlqBkaoDTuN6IFMhFd2vrkkcx1FjAqYHmdZFDQ-2BuYCNDrlFZkd-2FvypL8RAcAtBA7AodRrNbsq-2FG8HWqUXbjToGxwYPhQ-3D-3D) (September 21), Woods said oil has broken above $93–94 with a target of $112, a possible $125+ if things escalate, and energy stocks look "constructive."

## Read-throughs

* *Immigration is quietly setting the economy's speed limit.* No one put a fresh number on the payroll break-even level this week (the monthly job gains needed to keep unemployment steady). But two podcasts made the underlying point. Wallerstein ([Monetary Matters](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOi0Aoz5wZkBOzUzAgam38h9h-2BMlqlJMjlAXsYT72Vh91Nie1CPPMKuYhDOPm-2BQHaiS-2F1GAYXpqZpLHu9rCHjgmC-2BV3izm2VLfTcgXIjASotMA-3D-3DR2Wu_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf2-2F2QzdHLOcxM-2FjAPtAgUQBUsfs6ULkTp8-2B5PNYN9d0NbkaSI4sVIo5PZ3EO-2FVeh-2BcRKMeEUgkzpYWkU18blX7Bd84PP6gKHgetivpK-2B8zmnyNGB3KXwXmM3Wba0BMWQqw-3D-3D)) noted wage growth is falling "despite like a negative migration boom… there's no immigration, it's literally negative," which he reads as a sign policy is already somewhat tight. DeBusschere ([On The Tape](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOgmrNVpYj9LRXwjwImgtLmoKCh7bQ46WBa45IjyrJ0buOnmoitpMBiYkEXcRwe5nVt5rm32Osj2qYdSg6BxV2UM54N1AYm4M6Xdo8pa3Vzrig-3D-3D9wFy_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf-2BVNBidrlIjq8gk2irK-2Bx1U8BHx6bPH3A-2B1dng-2FSVdkVwZ0PB8qOrifHzZIeKEaK1GkPyC1EERrCT-2BeLddFYDIvWGTr4Xfpo7kLGp-2FgeP-2FQTXS6ZCeawf71PPqWe9EBsBQ-3D-3D)) drew the other conclusion: with no labor-force growth, the speed limit is about 2%, so 5% growth is inflationary. This matters for reading the jobs reports. When the workforce isn't growing, low claims and small payroll gains can both be true, and neither means the job market is weak.
* *The K-shaped consumer: strong at the top, cracks at the bottom.* For the top of the K, Varghese said restaurant and bar sales ran at "10% annualized from June through August." Wayfair's leadership on [Business of Home](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOgCpyAIOu8SzTOk8rFFq4UdHmSr8ad2KmVTd2Gfww-2BuwI4kDMqYA1EgzlctupNywK14RwVfxcOuPI67NPZIZVfhG3F-2Bw6RzHvRLvaYg5A5M5w-3D-3DFJ8n_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf-2BFfb6gAY00szBzTxZNW9IoRKzVdp5RaafSTw9sJyKx49WN4n5e7dcGeFNW7PJK100y2vl34Ki-2Fua8coajIXcANyg2n2GE7OoW7DWnW3qhqkbAybpBOS8GEXCVkWktfueA-3D-3D) (September 21) described high-end customers "spending considerably" while lower- and middle-income households take the hit from gas, food and essentials. For the bottom, housing analyst Melody Wright on [Commodity Culture](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjEx-2FaVjsGBkC40s5SV1M8Rq1n0ooT6mJBn8QTrxMtTdglgrcYz8a02fqvuGY1ZohbOdTIE9Sbtd238-2FtpQ5cFOMJgE4WKUeIpCjcboH6P-2B8A-3D-3DGtSL_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQfzYEjslDccd1VPJUMTH6t3-2FwDB42rcIAtR3tNRU9BY9YxVSLVWyBSMAerHK0O2Z1UKfthDZuMXOrVoaPQNYtSKYi-2FKG3XR88cb7oMEonm4IFjAhMnA0bPRJuHYiYYMcT5g-3D-3D) (September 23) said early-stage mortgage delinquencies failed to improve in spring as they usually do with tax refunds. They are showing up even among prime Fannie and Freddie borrowers, while "FHA is just crapping the bed right now." She gives Fannie and Freddie "about 18 months before it is at a very material level." An operator is more reassuring: Amherst's Dobson ([The Walker Webcast](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOj9j-2B9NB-2BRrhwTg2a1ccMIy-2BpO9mEYWrJymVB-2FnVafpYnxwNsoBk0TsSgorr0Wy2uWWqVEo2PegHVK52fbr6FundyvK0JIErYSxxnhxZOrMiw-3D-3DFQFe_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf5M9iYY7Zx-2FqsUmNCoV-2BRZCzZiSEkIM-2FOtcZcOQFopyx6WssyIcTZJh-2FzOXI57k-2FU7EV7-2BTxuOa9lQBPBEycvIkKlwJJ6N1VL4ctjkqMvfu8I2aEDxGeCnlQLK-2Fgq3U94g-3D-3D)) says renters "have proven incredibly resilient," with rent-to-income ratios "in the low 20s" and 40% of listed homes renting within 30 days. He adds a warning, though: "$6 a gallon diesel fuel. We have the Fed raising rates… They can mess this up."
* *Corporate read-through: AI borrowers don't feel the Fed, small borrowers do.* Kaplan's clearest point for corporates is that big AI spenders fund themselves in bond and stock markets that "already adjusted," while small businesses and homebuilders who borrow at short-term rates "will get somewhat squeezed." Expect more hikes to widen the gap between large and small companies, not slow the headline growth numbers.
* *Fiscal worries are going mainstream.* On [Planet Money](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOjIXGwtg9hfTH84HO2dOj1JCpoZDaxpdwAWReDOwoIIDlnjVJmvXgBdpyVpqksLTf2ltYHyOTM0L3mr9BTFnpp99SNXv4x1B6SLy8kFGF6GAg-3D-3D4ECq_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf85lcH4NVwI7JVhDnJqdQqM4pH5gmAZeoC7YFk4LdniqjCRds4OVOW3wQa3GLI97W8fri4WfcFB0oQDBz0yXKww-2BhRgNk0Hk3BnBKMzWK58EFrZWOhDc0179AWWMZILQhg-3D-3D) (September 23), Harvard's Karen Dynan, who once thought post-crisis borrowing was worth the risk, now says: "I am a debt hawk now." The US is paying "over a trillion dollars a year just in interest." Her colleague Ken Rogoff expects another spike in inflation and rates within a decade: "Until we've got punched in the face a couple more times we may not adjust." Kaplan added that the Congressional Budget Office has revised its deficit estimates up, not down, even with nominal growth near 5%, and that bond buybacks "isn't going to solve the problem." This debt pressure is part of why the long end sold off along with the short end.
* *Global spillover.* The France-Germany 10-year spread (the extra yield investors demand to hold French rather than German debt) widened to 110 basis points, "the highest it's been since 2012 in the midst of the Greek euro crisis" ([NAB Morning Call](http://url7324.matterfact.com/ls/click?upn=u001.idHmPrr2Geh7KYLAsTy7NkrIVb-2FgA4pmf2rMXQwGcOi3uOiYixHh1AXcVS8kcTDYUTtQG4YXuta3z1UWr242RT4eWNI04adFFM-2BsHgWKmi72Hd2aZY4-2FLQ3aadBiGEwCFstklfCJpzvYTuLwk-2Bp8sg-3D-3DB7ds_7mLGwmUci-2BLaXswv9WX1yTgqn3Wad-2FotHhzHgSNAZbXJb5vReGPW6bGem7o6WYyPhekfgA5-2B72asS5YPXfKQf3W5-2Fbiqa3d6u3KYnrQgNxgSh2-2FOsVxtj3iu0Liao6S-2FtJLC6GrnNmHi-2FxRNFpacpPKR-2BTnVWYab7S3k2JgNj-2FRvL5UYhJZES1CF9p6-2FPWOJ5b4Vz01zK-2F5YWjwuLbbIPw-3D-3D)). Wallerstein warns Europe faces not just stagflation but a real risk of "a technical recession because we can't grow because we don't have the inputs" if the diesel shortage deepens.

## What changed

Tuesday's recap ("The Fed Says One More. The Market Says Three.") framed the week as the Fed's forecast against market pricing. Here's what moved since:

* *The 10-year broke through 5%.* On Tuesday it was "capped at that 5% area" and the 2-year closed at 4.74%. By Thursday the 10-year had tested about 5.14%, a post-2008 high, and the 2-year was within about 10 basis points of 5%.
* *The hike timing moved earlier.* Tuesday's debate was about December and 2027. Now October is live, with hike odds near 70% after the surveys and Governor Barr's comments.
* *Labor went from a quiet topic to a hawkish one.* Tuesday's issue noted labor "barely came up." This week brought the lowest claims since 2022 on an unadjusted basis and continuing claims at their lowest since January 2024.
* *The dove camp changed its argument.* Tuesday's doves (Kelly, Gapen) argued inflation would fade on its own. This week's doves (Kaplan, Wallerstein, Snider) argue the market is pricing too much and the damage comes later, a shift from "it's transitory" to "don't overdo it."
* *Diesel moved from a market problem to a policy one.* Tuesday was about record crack spreads. This week added a reported 90-day US diesel export ban under consideration.
* *European stress widened.* The France-Germany spread went from 105 to 110 basis points.

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