Newsletter · 2026-10-05 · Ashutosh Agarwal

Jobs Miss Kills the October Rate Hike but Bonds Keep Selling - The Fed & the Front End - Week of October 5, 2026

The Fed & the Front End for the week of October 5, 2026, covering podcasts from September 28 to October 5. Synthesis on Fed officials Williams and Jefferson signaling no urgency, a cool August PCE and a 29,000 September jobs miss that pushed October hike odds toward December, and the debate over why long-term Treasury yields kept rising to multi-decade highs anyway.

The Fed & the Front End

Week of October 5, 2026: Jobs Miss Kills the October Rate Hike but Bonds Keep Selling

Last Monday, investors were all but certain the Fed would raise rates again on October 28. By Friday they had mostly given up on it.

Three things happened in four days. Two of the most senior people at the Fed said there was no rush. August inflation came in cooler than expected. Then the September jobs report showed the economy added only 29,000 jobs. Market odds of an October hike fell from roughly 70% to somewhere between 14% and 23%.

Here is the strange part. Long-term borrowing costs went up anyway. The 10-year Treasury yield, which sets the price of mortgages and most long-term loans, rose another 10 basis points on the week to 5.28%, touching 5.34% midweek. (A basis point is one-hundredth of a percentage point, so 10 basis points is 0.10%.) The 30-year yield reached about 5.59%, its highest level since 2002.

So the Fed blinked and the bond market didn't. Most of this week's podcast conversation was an argument over why.

TL;DR

• October is off. December is on. After Fed officials John Williams and Philip Jefferson said there is "no urgency," and after soft inflation and jobs numbers, CME FedWatch puts the October hike at about 23% (it bottomed near 14% on Friday). It shows about 85% odds of a hike by year-end, most likely in December (Schwab Market Update Audio).
• Long-term rates ignored the good news. The 10-year rose 10 basis points on the week. The 2-year, which tracks expected Fed policy, rose only 4 (Schwab). Minneapolis Fed President Neel Kashkari said the 2-year, at about 4.88% to 4.90%, sits further above what the Fed's own forecasts imply (a little over 4%) than at any point he and his staff could find (Bloomberg Talks).
• Higher rates are starting to bite credit and housing. Investment-grade corporate bond spreads had their biggest weekly widening since March. The lowest-rated junk bonds (rated CCC) had their worst week since April 2025. The 30-year mortgage rate jumped 25 basis points to about 7.28%, the largest weekly rise since October 2022 (Key Wealth Matters).

What's new

1. The first Fed pushback: Williams and Jefferson say there's no rush

Last week every Fed official on the podcasts sounded hawkish. This week two senior ones didn't. That shift moved the market more than any data release.

Marc Chandler, chief market strategist at Bannockburn Capital Markets, described it on The KE Report. He noted that until Monday the market had priced not only a 70% chance of an October hike but nearly 100 basis points of hikes over the next 12 months. Then New York Fed President John Williams, who holds a permanent vote as vice chair of the rate-setting committee, "talked about the lack of urgency." Chandler paraphrased the point:

"If the Fed realized they have to raise rates again, but do they have to do it in October? Does it have to be back-to-back hikes? Or does the Fed have some time"

The next day, Fed Vice Chair Philip Jefferson "seemed to echo those same kinds of sentiments."

The reaction was quick. Zaydad Mani of Public.com, on The Rundown, said October hike odds in prediction markets fell from about 70% before Williams spoke to about 50% after, calling the remarks "pretty shocking comments that kind of caught the market off guard."

Economist David Rosenberg, on Macro Voices, pointed to the substance of Williams' September 29 speech. Williams said there is no evidence that recent price shocks are feeding into wages, so inflation is unlikely to become "self-reinforcing." Rosenberg read that as a direct challenge to Chair Kevin Warsh: "for anybody that wants to see a Fed official that may be pushing against Kevin Warsh, who says wages don't matter."

Neil Dutta of Renaissance Macro put it in context on RenMac Off-Script. Williams and Jefferson did not really reveal anything new, he said. They told us where they sit on the "dot plot," the chart of each official's rate forecast. Four officials expect two more hikes this year, and nearly everyone else (all but two) expects one. Williams and Jefferson are in the one-more-hike group. "The information isn't that revealing, but it's the way they said it and when they said it."

Not everyone softened. Dutta noted that Dallas Fed President Lorie Logan, speaking on October 1, still argued for "another 50 basis points worth of rate hikes this year." She also made a subtler point: if long-term rates are rising because investors demand more pay for the risk of holding long bonds, that tightening "is a reason for the Fed not to hike," because "the long end [is] doing some of the work for the Fed."

2. Kashkari: "We will do what we need to do"

Of the Fed officials on podcasts this week, Minneapolis Fed President Neel Kashkari gave the most detailed interview, on Bloomberg Talks. He stayed firmly on the hawkish side. Five points stood out.

• The AI boom may be raising the "neutral" interest rate. The neutral rate is the rate that neither speeds up nor slows down the economy. "If there's massive demand for investment capital, that has to come from savings. Ultimately, that is a higher clearing price for that capital." Asked how high rates must go: "I don't know the answer to that."
• The market's message. He and his staff calculated the 2-year yield implied by the Fed's own projections. "The actual two year's around 488 or 490. My implied two year yield from the SEP is around a little above four. That's a very, very large gap." He added that after the 2008 crisis the market doubted the Fed's projected hikes, and "it turns out the markets were more right than the Fed was."
• Mortgage rates are partly a reallocation, not just Fed policy. "If a trillion dollars is going to go into data center related investment, that capital comes from somewhere. The market is taking it from housing and reallocating it to data centers. The mechanism is higher mortgage rates."
• Oil shocks are no longer an excuse to look away. "If it's truly a one-time supply shock, fine. If it's five years of a sequence of one-time supply shocks, at the end of the day, it's the Fed's job to get inflation back down." He said he had AI tools read the Fed's 1970s meeting transcripts. "The diagnosis in the 1970s was not that different. They said, oh my gosh, it's an oil supply shock." The one big difference: back then there was a wage-price spiral, "which is clearly not happening today."
• Job losses are not required, but not ruled out. "I don't think it's necessary because the labor market is not the primary source of inflation today... but I also don't want to rule it out." He cited 4.1% unemployment and low layoffs, and said he hears "more about inflation broadly than I do about interest rates." One story: a small business owner told him he had just lost a business he spent seven years building because he "couldn't keep up with inflation."

He also said he reads capital-markets activity as a gauge of how tight policy really is. When IPOs are oversubscribed, "that makes me question, is policy as tight as I previously thought it was?" He named the shelved Aura IPO as one sign of growing caution.

3. August inflation: cooler, with a caveat

The Fed's preferred inflation measure is the PCE price index, short for personal consumption expenditures. It came in below forecasts on September 30. Bloomberg's Alexis read the numbers on Bloomberg Surveillance:

The caveat came from Gary Schlossberg, global strategist at the Wells Fargo Investment Institute, on Marketplace All-in-One. In August the Bureau of Labor Statistics changed how it calculates categories like computer software and investment services, "which was going to have the effect of lowering inflation by a couple of tenths of a percent." On the old method, inflation would have read about 3.6% to 3.7%.

Omar Sharif, president of Inflation Insights, on the same podcast, worries more about the details than the headline: "more than half the basket is rising at an inflation rate of 3 percent or higher." He doesn't expect that to fall "even if the war with Iran ends tomorrow," and thinks the Fed will "hike one more time in Q1," since companies tend to raise prices after the holidays.

Mike Reed, senior U.S. economist at RBC, on Bloomberg Surveillance, said the soft number was "due to methodology" and inflation is "moving in the wrong direction." He sees housing disinflation as "largely done for this year" and services stuck. He also expects higher freight costs, now rising at a pace "comparable" to 2020, to "bleed through into the core goods space." He flagged one consumer warning sign: interest on non-mortgage debt (credit cards, auto, student and personal loans) is about 2.5% of disposable income. "The number that concerns me is 2.8%." In each of the three recessions before COVID, that ratio hit 2.8% first.

Second-quarter GDP growth was also revised up to 2.2% annualized from 1.5% (Bloomberg Surveillance). That fed the view that the economy can handle higher rates.

4. The September jobs report: "one for the doves"

Colette O'Claire covered Friday's report on Schwab Market Update Audio:

• Payrolls rose 29,000, against a consensus of 84,000.
• The prior two months were revised down by a combined 60,000. August fell from 162,000 to 133,000. July went from a 21,000 gain to a 10,000 loss.
• Unemployment ticked up to 4.2%, against an expected 4.1%.
• Wages rose just 0.1% for the month, against an expected 0.3%. Chandler put hourly earnings growth at about 3% year over year (The KE Report).
• Health care was the only sector with a significant gain. The three-month average fell to about 50,000 from 71,000.
• On the other side, the separate household survey showed a 406,000 gain and labor-force participation rose.

Colin Martin, head of fixed income research at the Schwab Center for Financial Research, said it "doesn't change our expectations of two more rate hikes, but it gives the Fed more time," and that "this report likely takes away the potential need to aggressively raise rates in the coming months."

Dutta called it "one for the doves," checking every dovish box: weak jobs, weak wages, higher unemployment (RenMac). But he doesn't think it changes much. A three-month average of 51,000 "is fine" because slower population growth means the economy needs fewer new jobs to keep unemployment steady. "The onus is still on the inflation side," he said, and the inflation data due in two weeks "will probably be more important."

Jeff Snider of Eurodollar University disagreed sharply. He measures jobs against the 2010s trend, and by that yardstick "by September of 2026, we're now 9.7 million jobs off of trend," up from 4.5 million short in mid-2023. Payrolls are up 776,000 since January 2025. "That's terrible." In his view the unemployment rate hides the weakness because people who stop looking for work aren't counted. "The Fed is wrong. They're dead wrong about the state of the labor market."

5. Bonds sold off on good news, and the "why" split the podcasts

Here is how the week played out in yields, across several podcasts:

• Monday, Sept. 28: 10-year 5.22%, 30-year 5.53%, 2-year 4.91%, per Morgan Brennan on Morning Call. Later that day the 10-year hit 5.27% and stocks fell to session lows (Squawk on the Street).
• Wednesday, Sept. 30, after PCE: the 10-year dipped 3 basis points to 5.20% (Bloomberg Surveillance).
• Thursday, Oct. 1: the 10-year hit 5.34%, its highest since 2002, capping a gain of more than 85 basis points in the third quarter (Brew Markets). It closed at 5.23% (Marketplace All-in-One).
• Friday, Oct. 2: yields "sagged early Friday after weak jobs data but plowed back," ending the week at 5.28% for the 10-year (Schwab). Rajeev Sharma, head of fixed income at Key Wealth, said the 2-year fell 10 basis points right after the report (Key Wealth Matters).
• By Monday, Oct. 5: Joe Weisenthal on Odd Lots put the 30-year at 5.592%, "the highest level since 2002... It really is both extraordinary speed and scale."

Peter Schiff, on The Peter Schiff Show Podcast, saw it as ominous. On Tuesday, bonds sold off even though the Conference Board's consumer confidence index fell to 81.9 from 88.6, a 12-year low, and job openings came in at 7.079 million against 7.225 million expected. His warning before the jobs report: "If we get a weak jobs number and the bond market doesn't rally... look out." Friday's partial reversal arguably fits that description.

The Debate section below lays out the explanations.

6. The global picture: the U.S. isn't alone

Chandler put the U.S. move in context (The KE Report):

France's premium over Germany widened to about 150 basis points this week, against a usual 80 or so. Chandler cited a minority government and repeated failures to pass a budget. Meanwhile the dollar index "has gone basically ballistic," up about 3.6% since just before the mid-September Fed meeting, to around 101.68 and new highs for the year.

Brij Khurana, a fixed-income portfolio manager at Wellington, noted on Alpha Exchange that markets are pricing "a coordinated global tightening cycle." Before the Fed's September hike, U.S. pricing implied close to 100 basis points of hikes. Europe is pricing about 80, with Australia and New Zealand also pricing increases.

The debate

This week's argument had two layers. Is the Fed doing too much or too little? And are long-term rates rising because of the Fed, or because of something the Fed can't control?

Layer 1: Hike more, or stop here?

The hawks' case, at its strongest: Inflation has been above target for nearly six years, the economy is growing quickly in dollar terms, and services inflation doesn't care about oil or tariffs.

• Joe, a former adviser to Treasury Secretary Scott Bessent (he called Bessent "my old boss"), on CNBC's Fast Money, is calling for 100 basis points more in hikes. He said Bessent had joked to him, "oh, look, Mr. Interest Rate Hike." His reasoning: "We're going to have two quarters in a row with nominal growth well over 6 percent." Also: "Core services, which are half of the PCE and half of the CPI, those prices have consistently been running above 3 percent. That's totally immune from AI. It's totally immune from what's happening with tariffs." His path: "The Fed skips. They're not going in October. They'll go again in December. They'll go again January, probably March, perhaps even in April."
• Chandler expects "at least two more Fed rate hikes," in December and "probably again in Q1," because "the economy is growing too hot." He noted futures price "a little bit more than three" (The KE Report).
• Dutta, on Squawk on the Street on Monday, argued that higher rates are already crushing housing and consumer stocks but not the booming tech sector. "If the Fed is having a financial conditions framework, breaking the equity market ultimately means having to break this part of the economy. And so that's going to probably require much higher interest rates than investors currently anticipate." On what would bring rates down: "It increasingly depends on what you think is going to happen with the AI CapEx. So call me when that slows down." On RenMac he added that the Fed's forecast of 2.5% core inflation next year is "a very optimistic forecast," and asked whether they would "really... not hike again after... revising up their inflation forecast next year."
• Eric Winograd, chief economist at AllianceBernstein, on Bloomberg Surveillance, supports the hiking cycle but expects it to be small: "a recipe for a constrained, gradual cycle rather than a rapid, aggressive one." Inflation isn't accelerating, he said. "They just need to get conditions... a little bit tighter to make it go a little faster." He thinks the Fed would "be satisfied if inflation runs between 2 and 2.5%."
• Chris Whalen of Institutional Risk Analyst, on The Julia La Roche Show, thinks Powell's six cuts in two years left rates "probably too low now." He agrees with economist Mickey Levy that the Fed should "get to neutral and kind of leave it there." In practice: "We're going to probably end up taking back the interest rate cuts from 2025. Maybe take back some or all of the cuts from 2024." He calls Warsh "a hawk" who wants rates "closer to a positive real rate."

The doves' case, at its strongest: Inflation from an oil shock only lasts if wages chase prices, and they aren't. The job market is weaker than the unemployment rate suggests. Hiking into an energy shock is a classic recipe for recession.

• Alan Blinder, former Fed vice chair, on Squawk on the Street: "I would hold. I want to see if it's necessary." He sees "a slightly stronger case that [core inflation is] trending down than trending up," though "it's not exactly plunging into the sea." He also noted that the October 28 meeting is "only days before the election" (the November 3 midterms), and "the Fed wants to keep its head down very close to elections." December "is probably good enough. But look, this is a close call."
• David Rosenberg (Macro Voices) calls the energy shock "really akin to a tax increase." It is not inflationary "unless the labor market plays ball," and it isn't, because "in nominal terms, wages are decelerating." He is pointed about Warsh's new focus on the share of PCE items rising faster than 3%: "A bag of peanuts to Kevin Warsh is equivalent to an automobile. Think about how insane that is." He notes that while seeking the job, Warsh favored the Dallas Fed's trimmed-mean inflation measure, "which last I saw was 2.3%," and "doesn't talk about that anymore." His bottom line: "Until I see the labor market respond, I'll take the other side of the bet."
• Brij Khurana of Wellington (Alpha Exchange): "The two main reasons you cause a recession are tight monetary policy and then commodity price shocks that temporarily cause real wages to go down. And what's interesting to me is we're getting both of them." Real wages excluding government transfers are "growing at a negative level year over year, which is very rare outside of recession." He also noted that while the gap between 2- and 10-year yields hasn't inverted today, it has inverted "a year from now" in forward pricing. That suggests that if the Fed follows through, policy will be tight. Last cycle the Fed got to about 5.25%-5.5% with 8% inflation and much healthier household balance sheets. Now the market is pricing a policy rate "getting close to 5%."
• Liz Thomas, on RiskReversal Pod: "I think the Fed is going to have to tap the brakes on this hiking cycle. And if and when the war deescalates and oil prices come down, they're going to have to tap the brakes pretty quickly." If that happens, she said, the Fed loses credibility because "it was like, oops, we're not going to have to hike."
• Jeff Snider (Eurodollar University) argues the inflation-protected bond market sees little inflation risk because incomes aren't growing. "If incomes aren't growing fast enough and costs go up, it will not be inflationary." He contrasts that with the 1970s, when nominal personal income grew close to 10% a year: "fragile labor market plus oil equals demand destruction."

Layer 2: Why are long-term rates rising?

This is the more interesting argument, and it has real consequences. If the Fed is the cause, rates should fall when the Fed stops. If something structural is the cause, they may not.

Camp A: It's the Fed (and strong growth).

• Aidan Garrib, head of global macro strategy at PGM Global (now part of National Bank of Canada), on Forward Guidance, took apart the 10-year move with his own charts. Inflation expectations, at about 2.4%, "haven't budged all that much." The term premium, meaning the extra yield investors demand for tying money up for a long time, "hasn't really moved all that much." What has risen is the market's estimate of where the Fed's rate will sit over the long run. His conclusion: "It isn't inflation worries or like fiscal worries... It's actually just the Fed, the market saying like, hey, the Fed needs to hike more." The reason: "Nominal GDP is a hell of a drug... You got nominal GDP 6.6%, credit growth at 3%. You want 10-year treasuries at like 4% with the Fed at three. Like it just doesn't make sense."
• Rosenberg agrees on the cause, if not the cure. Long rates have risen about 90 basis points since Warsh took over in June, and he puts it down to "regime change at the Fed." He estimates the rise is about "90% real rates and only 10% inflation expectations." Real rates are interest rates after inflation. In February markets priced one or two cuts. "Now the markets are priced for three or four more tightenings." He added: "Whenever Warsh opens his mouth, the 10-year yield goes up six or seven basis points."
• Khurana: "Most of it has been a Fed repricing and real growth story emanating out of AI," not Treasury supply or inflation expectations.
• Dutta: "Interest rates are going up because monetary policy is tightening and global growth is resilient... Longer term interest rates are essentially expectations of future short term interest rates." He sees no link between countries' interest burdens and their yield moves. The debt-spiral story "does make for a good story," but "I don't really see much there there."

Camp B: It's something bigger than the Fed.

• Winograd: "When the Fed was cutting rates, long bond yields were going up. And now that they've raised rates, long bond yields are still going up... So that tells us that this cycle isn't really about the Fed." His explanation is "a smorgasbord": a budget deficit of 6% of GDP in a healthy economy, on-and-off tariffs, swinging oil prices, Treasury changing its borrowing calendar, and intervention in currency markets.
• Carolyn Pflueger, of the University of Chicago Harris School and a visiting scholar at the Chicago Fed, on Odd Lots, offers a research-based answer. Bonds used to rise when stocks fell, which made them a good hedge. Now they tend to fall together. Her estimate: about a quarter of the drop in the 10-year yield from the mid-1980s to the 2010s came from bonds becoming better hedges. But "over the past five years, or let's call it 2020 through 2025, the increase in the 10-year yield... the majority... you can explain with changes in bonds becoming more stock-like." Her summary: "Markets require a higher return when bonds are risky."
• Kashkari said part of the long-end move may be an "inflation risk premium," where investors believe the Fed but want "a little extra compensation just in case we're wrong." That "doesn't give me much comfort," because it is "the cousin of inflation expectations."
• Cem Karsan, on Top Traders Unplugged, lists five structural forces. Refinancing debt borrowed cheaply in 2021. Inflation from war and protectionism. Fear that the U.S. will eventually print money to manage its debt. Fewer foreign buyers of Treasuries. And AI companies borrowing heavily "and competing for capital." He calls the Fed's hawkishness "kabuki theater" and argues Warsh and Bessent are "one and the same."
• Brew Markets (Oct. 1) gave the plain-English version of the supply argument. Federal debt is past $40 trillion, and AI firms are borrowing heavily too, so "AI is helping create the economic resilience that is ironically making money more expensive."

Rosenberg pushed back on the debt story directly. When the 10-year was last below 4% in February, the national debt was $39 trillion. "Now we're at $40. Oh, so this last trillion is we have a debt crisis on our hands."

My read: Camp A has the better evidence for most of the move so far, since Garrib's breakdown and Rosenberg's timeline both point at the Fed. But this week weakens it. If the move were mostly about the Fed, a 50-point drop in October hike odds should have pulled long rates down, and it didn't. The 2-year rose 4 basis points on the week and the 10-year rose 10. That gap is what Camp B predicts.

The trades in play

These are the positions voiced on podcasts this week. They are reported here, not recommended.

• "Balance by extremes," a barbell. Liz Thomas is "all in on software, all in on semiconductors, all in on cybersecurity, all in on AI" on one side. On the other she holds a position in the 10-year Treasury, gold, and commodities, "and I don't have a lot in the middle." She bought the 10-year because "if there's attractive yield somewhere else, you're going to buy that attractive yield" rather than gold (RiskReversal Pod).
• Stay short-term. Rosenberg: "The Fed has taken the cost to carry away. Where are you going to hide? Well, you're going to hide at the front end of the curve, or you're going to go to the Treasury bills. Why would you want to take on duration with such a flat yield curve?" ("Duration" means exposure to long-term bonds, whose prices swing more when rates move.) He also notes "a record level of net spec... short positions" in 10-year note futures. Betting against bonds has become "sexy and fashionable" (Macro Voices).
• Add some duration. Joyce Wong of Vanguard, on Morning Call, sees "a very compelling opportunity for investors to get back into bonds and especially think about adding a little bit of duration." Vanguard's studies show investors are "mostly concentrated... in cash, money markets, very, very short debt."
• Inflation-protected bonds, strong-balance-sheet foreign bonds, and emerging-market local bonds. Khurana's three "areas of excitement." On TIPS (Treasury Inflation-Protected Securities), the market is pricing only about 2.3% average inflation, which he calls a cheap price for protection. He explains it this way: TIPS "trade like credit when you don't want [them] to trade like credit," and are "under-owned" after disappointing in 2022. He also thinks long rates are too high. The 10-year rate starting 10 years from now is about 6.2%, roughly "100 basis points too high" against his estimate of about 4% long-run nominal growth (Alpha Exchange).
• Long energy, short banks. Whalen has "upped our exposure to energy pretty significantly," sold his Charles Schwab shares, and trimmed Annaly to fund energy, though Annaly "is still our biggest position by 2x." He has also "put down a couple shorts on banks, Julia, which is not something I normally do." His expectation: consumer defaults will rise into 2027, starting with lenders to riskier borrowers such as Synchrony and Capital One before reaching JPMorgan (The Julia La Roche Show).
• Individual bonds and ladders over bond funds. Chad Burton, a financial planner at EP Wealth Advisors, on the Rob Black Show, warned that redemptions in big retail bond funds can force managers to sell at a loss. He prefers owning individual bonds, including a 5-to-15-year California municipal bond ladder at "a little over 3.8 tax free yield," which he equated to "almost 8.3" taxable in the top bracket.
• A crash, then a rescue. Karsan predicts the 10-year goes to "somewhere between five and a half and 6%... quick... sometime in the next three months," alongside a "25 to 40%" drop in the S&P 500. He expects it is more likely after the midterms, followed by the Fed buying long-term bonds to cap yields (Top Traders Unplugged).
• Curve flattening. Jeff deGraaf of Renaissance Macro said his model shows the three-month rise in rates at a 2.8 standard-deviation extreme. Spikes like that tend to keep going in the 2-year but reverse in the 10-year. "What does that mean? That means that the curve is going to flatten," typically within about three months (RenMac). Note that this week went the other way, with the curve steepening.

Read-throughs

Credit is starting to crack, from the bottom up.

• Sharma: investment-grade spreads (the extra yield on high-quality corporate bonds over Treasuries) widened about 5 basis points, "the biggest widening we've seen in a week since March," to their widest in six months. High yield is "on track for the fifth consecutive weekly loss." CCC-rated bonds "had their worst weekly loss since April 2025" (Key Wealth Matters).
• Schwab: high-yield spreads rose eight days in a row through Thursday (Schwab).
• deGraaf puts CCC-versus-BB spreads at about 952 basis points. About four badly stressed issuers make up roughly 25% of that market. Excluding them, it is about 680. "All those spreads have started to go up... We're just at the cusp of that starting to happen." He also saw investment banks and diversified regional banks become oversold: "the curve and rates started to hit financials" (RenMac).
• Whalen: "Credit corrections always come from the bottom up... This is why people talk about a K-shaped economy, but that K is fast becoming an L," meaning even affluent consumers start to feel the squeeze (The Julia La Roche Show).

Housing is frozen.

• The 30-year mortgage is at about 7.28%, up 25 basis points on the week, the largest weekly jump since October 2022, and up six weeks in a row (Key Wealth Matters).
• The Rob Black Show said existing home sales fell below a 4 million annual pace, the lowest in 40+ years after adjusting for population. The premium of buying over renting is "one of the highest on record and eclipses the 2006 housing bubble." Houses with mortgage payments over $3,000 a month rent for under $2,000.
• Schiff: the median home costs about five times median household income, against 3.3 to 3.4 times in the 1980s and 1990s. The average down payment has fallen to 13.8% from 25.4% in the 1980s. Forty years of falling rates let homeowners refinance and pull out cash, and "now housing is going to be a headwind." JOLTS showed housing-related employment at a 12-year low (The Peter Schiff Show Podcast).
• A real-world example from Millionaire Mindcast: a buyer whose deal fell through made the same offer on the same duplex 30 to 45 days later. His payment had risen by about $1,100 a month and he no longer qualified.
• Garrib explained why the Fed might accept this. Residential construction jobs lead the economic cycle. The Fed can't cut without unsettling mortgage bonds, so it may "hike, talk about tightening policy, try to flatten the curve," hoping lower long rates eventually restart housing (Forward Guidance).

Stocks: strong on top, weak underneath.

• The Nasdaq hit an all-time intraday high Friday and Nvidia set new 52-week highs. But the equal-weight S&P 500, which weights every stock the same, is down seven straight weeks, "the worst stretch since mid-2022." Only about 42% of S&P 500 stocks trade above their 200-day moving average, down from 74% in mid-August (Schwab).
• Lizanne Saunders, chief investment strategist at Schwab, on Squawk on the Street, said the move to 5.25% so far "has been more than justified by the fundamentals" and has been "orderly." Equities would struggle "with any continued move higher to become a bit more disorderly." She favors quality: companies with positive earnings growth, strong balance sheets and high interest coverage.
• Karsan: once you adjust for the 10-year yield, "valuations have never been higher ever," with "zero to negative earnings growth everywhere outside of the AI complex" (Top Traders Unplugged).
• On AI spending, Garrib noted that much of it is price, not volume. Amazon said memory costs will absorb 30% of its 2026 AI data-center spending, against 8% in 2023-24. Of Microsoft's roughly $190 billion guidance, about $25 billion reflects higher prices. Hyperscaler AI capital spending grew over 90% in 2026 and is forecast to slow to 30-35% next year (Forward Guidance). Rosenberg added that three of the four biggest hyperscalers are now free-cash-flow negative and borrowing at the long end in multiple currencies (Macro Voices).

Treasury's bond buybacks are getting panned.

• Blinder: Bessent "looked foolish with this half-hearted attempt to buy down the yield curve... If you're in a hole, stop digging, he seems to still be digging at least a little bit. I don't get it. The market doesn't get it" (Squawk on the Street).
• Quinn Thompson of Blockworks, on Forward Guidance, argued that efforts to push yields down feed into oil and equities instead, "making the inflation problem worse... you're like pushing on a string."

Oil and Iran remain the wild card.

• On Monday WTI crude was about $95.50 and Brent about $108 after President Trump rejected Iran's latest proposal to reopen the Strait of Hormuz (Morning Call). Ed Mills of Raymond James, on the same podcast, said the gap between the two sides is "just too wide." He sees risk that Iran escalates before the midterms and Trump escalates after.
• Oil fell Tuesday when Saudi Arabia restarted its East-West pipeline (The Rundown). It fell again Friday on more supply leaving the Gulf and a proposal for EU countries to release emergency diesel (Schwab). Rosenberg noted Hormuz traffic is now the highest since the war began.

The midterms matter for bonds.

• Rosenberg: "There's two dates we should circle on the calendar... November 3rd... it looks as though the Democrats take the House." Prediction markets give better than 50% odds on the Senate as well. Gridlock would curb new fiscal stimulus (Macro Voices). Khurana agreed that divided government "has historically been very important inflections for bond markets."

What changed since last week

• October hike odds collapsed. Last week they were 64% to 67%. This week they ran from about 70% early on, to 50% after Williams, 35% after PCE, and about 14% early Friday, before settling at 17% to 23% (Schwab; Key Wealth Matters; The Rundown). December is now the base case, at 85% to 88% (RenMac).
• A dovish Fed voice finally showed up. Last issue no Fed official on the podcasts argued against more hikes. This week Williams and Jefferson questioned the urgency. Kashkari and Logan stayed hawkish.
• PCE undershot. Last week Dutta expected core PCE to rise 0.3% for the month. It rose 0.2%, with a methodology change doing some of the work.
• The 10-year didn't pull back. It went from 5.21% to 5.28%, with a high of 5.34%, the highest since 2002, versus last week's "highest since 2007." The 30-year moved from about 5.43% to about 5.59%.
• The curve steepened. The 2-year rose about 4 basis points on the week and the 10-year about 10, the opposite of last week's flattening.
• Credit stress is spreading beyond the riskiest bonds. Last week's warning signs were confined to CCC-rated bonds. This week investment-grade spreads also widened by the most since March.
• Mortgage rates moved from the 7.4% to 7.5% range in daily surveys to 7.28% in weekly survey data, up 25 basis points on the week (different surveys, same direction).
• Iran: still stalled. No deal, though oil eased late in the week on supply.