On September 16th, Darius Dale joined Merella Fernandez on BNN Bloomberg’s The Close following the Federal Reserve’s 25-basis-point rate hike. He explained why the bond market may force additional near-term tightening, why investors should remain patient during a potential fall correction, and why the longer-term outlook remains bullish.
If you missed the discussion, here are two key takeaways for your portfolio:
1) The Bond Market Is Pulling the Fed Toward Tighter Policy
According to 42 Macro’s Market-Implied Fed Neutral Rate Model, the U.S. neutral rate and R-star have risen roughly 100 basis points over the past six months. This can be attributed to declining global supply of capital following the closure of the Strait of Hormuz and increasing demand for capital from the accelerating AI capital-expenditure boom.
Key Takeaway: If the Fed fails to respond with tighter policy, it risks sacrificing the bond market to support nominal growth and equities.
2) Near-Term Tightening May Create Room for Easier Policy Later
Darius described the current tightening cycle as a “play-action pass to set up the run.” He expects the Fed may ultimately deliver two to three hikes, helping restore credibility with the bond market without tightening enough to derail the business cycle.
Key Takeaway: Markets may still need to price in tighter policy and political risks surrounding AI ahead of the elections. However, we expect any potential correction to bottom around that period before investors begin looking toward a more dovish policy environment in 2027 and 2028.
Near-term volatility can obscure a still-supportive longer-term outlook. The challenge for investors is knowing when to remain patient and when the underlying signals require a change in positioning.
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