PodcastThe Real Investment ShowLance Roberts

9-16-26 Q&A Wednesday: What Will The Fed Do?

The discussion weighs the risk that the Federal Reserve could tighten policy in response to oil-driven inflation even as labor-market and household-spending conditions weaken. It also examines how higher rates, elevated oil prices, changing fixed-income incentives, and stretched valuations could pressure consumers, earnings, and equities. Market views include potential relief in bonds and gold, a possible S&P 500 decline toward 7,400, and lower equity returns over the next decade, although AI and capital spending could extend the current bull market.

Monetary PolicyInterest RatesInflationOilEquitiesMarket Valuations

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Key Takeaways

The speaker argues that inflation is concentrated in oil rather than a broad supply-demand imbalance: if oil retreats toward $70, inflation could ease and expose a rate hike as a policy mistake. That could force the Fed to reverse course and cut rates early next year, despite markets pricing roughly a 90% chance of a hike.

Higher oil prices, interest rates, and consumer borrowing costs are putting disproportionate pressure on lower-income households, whose discretionary cash flow is limited. The episode also questions the strength of the labor market, noting that 160,000 jobs was below the economy’s replacement rate and partly reflected seasonal hiring.

The discussion portrays credit-card pricing as both politically difficult to regulate and structurally resistant to lower rates: President Trump’s proposed 10% cap stalled amid bank opposition, while card rates generally rise with lenders’ funding costs. The speaker also highlights the disparity between banks charging roughly 25% on credit cards and private hard-money lenders facing usury restrictions at similar rates.

The episode argues that the investment backdrop has shifted away from the post-2009 environment in which zero rates and quantitative easing pushed capital from cash and bonds into equities. With Treasuries yielding near 5% and expected equity returns around 6%, fixed income may offer institutions and other investors a more attractive risk-reward tradeoff, while elevated valuations and weaker capital spending could pressure stocks and earnings.

GEO-POLITICS

Rate Cap Opposition — Capping credit-card rates at 15% or 10% is portrayed as politically unlikely because powerful bank lobbies oppose limits. Banks also generate substantial revenue from credit cards and related products. President Trump’s proposed 10% cap quickly stalled.

“You could. The problem is the bank lobbies. I don't think that you're going to get that legislation passed…”—

ECONOMY

Fed Hike Risk — Markets were pricing roughly a 90% chance of a Federal Reserve rate hike, possibly to demonstrate seriousness about inflation. The speaker questions whether following market expectations instead of economic data could produce a policy mistake.

“Of course, today is also Fed day. Everybody's just anxiously awaiting, you know, this afternoon. See what the Fed says. Will they hike? Won't they hike?…”—

Oil Inflation Risk — The speaker argues that current inflationary pressure is concentrated in oil rather than a broad supply-demand imbalance. If oil prices fall toward the $70 range, inflation could decline and expose a rate hike as a policy mistake, potentially forcing the Fed to reverse course and cut rates early next year. Core inflation is cited at 2.4%, versus the Fed’s 2% target.

“But if we get a big reversal in oil prices and get a correction back towards the average means, that's going to take some of the move out of or…”—

Household Rate Pressure — Higher oil prices and interest rates are increasing spending pressure on lower-income households without corresponding broad-based income growth. With limited discretionary cash flow, these households would divert more income to interest payments as short-term rates and consumer borrowing costs rise, further constraining spending.

“When you hike rates on the short end, what does that impact, right? That impacts credit cards. That impacts short-term debt. That impacts buy now pay later…”—

MARKETS

Moving-Average Break — The market broke below its 50-day moving average, but the host does not view the move as a major concern. Similar breaks recently failed to persist and were followed by recoveries.

“Market broke down below the 50-day moving average yesterday. Again, that's not a major concern. Of course, you know, these breaks of the 50-day moving average are important…”—

Oil Pullback — Oil prices fell about 2% to roughly $103 after reaching approximately $106 the previous day. Elevated oil and diesel prices are weighing on consumption and transportation while adding to inflationary pressure; a further decline could support the economy and stocks.

“We're down about 2% in oil prices this morning. We're sitting at about 103, but we were up to about 106 yesterday…”—

Individual TIPS — An individual Treasury Inflation-Protected Security adjusts its principal for CPI inflation and matures at an inflation-adjusted face value. The speaker distinguishes this mechanism from a TIPS ETF, noting that the maturity adjustment applies to owning the individual bond rather than automatically to an ETF position.

“I'm going to buy the tip today at whatever the price is…”—

FORECASTS

Bond Relief Rally — The speaker expects the bond market could experience a relief rally after the FOMC meeting because yields are viewed as stretched and investors will gain greater clarity on policy expectations. A rate hike could also reassure markets that the Fed is serious about inflation.

“This will also move the markets and probably the bond markets…”—

Oil Mean Reversion — Oil prices are described as unusually far above their long-term mean, a condition that has historically tended to reverse. Elevated prices can undermine their own sustainability by disrupting economic demand, eventually pushing oil back toward more normal levels.

“On a on a deviation basis, we're extremely deviated from long-term means…”—

S&P Support Levels — The S&P 500’s 50-day moving average is identified as near-term support but is expected to break before month-end. A break could send the index toward roughly 7,400, while the 200-day moving average around 7,150–7,180 represents much deeper support. A decline toward 7,400 could create an accumulation opportunity before a possible year-end rally after the midterm elections. Gridlock is viewed as the most favorable political outcome for markets.

“So, right now we're sitting right at the 50-day moving average. The 200 day moving average is way down here…”—

INTRO

Lance opens the Q&A by explaining that markets expect a Fed rate hike, while he anticipates a possible bond relief rally and a conditional stock-market rebound.

Fed Day: Will They or Won't They?

He says the Fed may hike largely to demonstrate inflation-fighting credibility, but emphasizes the importance of the decision's vote and dissent structure.

Market Breaks Below 50-DMA

The S&P 500's break below its 50-day moving average is not yet alarming because prior breaks were brief, though recent selling has weakened momentum.

Reflexive Rally not surprising, post-Fed

Because markets are increasingly oversold and the FOMC meeting is the next major catalyst, Lance says a reflexive post-meeting rally would not be surprising.

Oil Prices Putting Pressure on Economy

Oil near $103-$106 is pressuring inflation, consumption, and transportation, while a sustained decline could relieve economic and equity-market pressure.

What's the Expected Market Reaction for FOMC Rate Decision?

Lance argues that oil-price spikes historically revert because high prices damage demand, eventually giving inflation and bond yields room to ease.

Are there clear tech support levels for S&P?

He expects a positive market reaction if the Fed delivers news investors can interpret favorably, but calls a hike into an oil shock a potential policy mistake.

Does it make sense to owns TIPS in an IRA in a state with high income tax?

The S&P's 50-day average is immediate support, while breaks could expose 7,500 and potentially 7,400 before a possible post-election recovery.

Lance's Roth Thesis

Lance says TIPS can fit some accounts but are probably too conservative for a Roth IRA, where investors need growth without taking unrecoverable risks.

Inflation feeds into everything; isn't it tame for now? (What the Fed SHOULD do)

His Roth and IRA thesis balances tax advantages and growth against the danger that large losses cannot easily be repaired with new contributions.

Credit Card Spending and After Tax Wage Growth

Core inflation near 2.4% is relatively tame, but weakening wages and sub-replacement employment growth make a rate hike questionable unless the economy is overheating.

Do Markets Compound? (no)

Bank of America data shows lower-income households are spending more amid higher oil and interest costs, while slowing income growth threatens broader consumption.

Gold Behavior and Rate Hikes

Lance suggests the Fed may be following market demands for a hike instead of the underlying economic data, creating another risk of policy error.

Too Bad Warsh Didn't Introduce Truflation (link to Oliver Rust interview is below)

He rejects the idea that markets reliably compound, distinguishing smooth compound interest from volatile equity returns that can be damaged by losses.

90% Equities, 10% Cash: Time to Buy Bonds?

Using examples of negative years and recovery math, Lance explains why actual portfolios often fall far short of the smooth returns projected by retirement plans.

Nick Timaros Chart--pricing in two rate hikes this year?

Gold is technically oversold and could rally, while Lance cautions that the expected Fed move is a hike after a pause, not the first hike of a new cycle.

Selling Equities to Lock in Bonds?

AI-related data-center capital spending may extend growth and the bull market, but weak wage growth raises doubts about how durable that support will be.

(Gamblers Anonymous Thursdays w Michael Lebowitz)

Lance recommends an interview with Truflation's Oliver Rust and notes that the company has discussed its alternative inflation measures with the Federal Reserve.

Raise Rate and Lower Credit Card Rates? (Doesn't work that way)

Higher yields and heavy short positioning create a potential bond trade, including tax-loss selling longer Treasuries and buying shorter, higher-coupon securities.

Do we only have a few years left to make money? (yes) (chart)

Markets are pricing two Fed hikes, but Lance sees a meaningful chance that economic weakness will lead to rate cuts next year instead.

Will Payment of Interest on National Debt be an Issue? (no)

Investors are already shifting toward fixed income because Treasuries offer meaningful income with less risk, reviving bonds as an alternative to equities.

Where might the top of the Ten Year Treasury be?

Lance expects equity-to-bond reallocations to grow because pensions, insurers, and other institutions can lock in needed returns with safer Treasuries.

Why can't you cap credit card rates lower?

He addresses credit-card caps, arguing that legislation could lower rates but bank lobbying and industry profits make meaningful limits unlikely.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

No Guarantees: Past performance does not predict future results; investing carries risk.

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