RenMac Off-Script: Higher for Longer, Wronger for Longer?

PodcastRenMac Off-ScriptJeff deGraafOct 16

The speakers weigh persistent inflation against a potentially more restrictive Fed, noting that September’s CPI and PPI inputs imply a 0.34% core PCE increase and that strong growth could keep policy tight. They also discuss political and geopolitical risks, including affordability concerns, possible tariff threats, and energy-supply disruptions. In markets, credit signals are mixed, bullish sentiment appears stretched, and semiconductor weakness bears watching; the speakers also consider how a real yield near 3% could affect equity allocations.

Inflation Monetary Policy Interest Rates Geopolitical Risk Investor Sentiment Semiconductors

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Key Takeaways

The speakers describe inflation as persistent: the September CPI and PPI inputs imply a 0.34% core PCE increase, or just over 4% annualized if sustained, while electronics, food, and expected energy pass-through add pressure. They also say higher grocery and gas prices could lift short-run household expectations, and one speaker argues that above-trend growth or a strong jobs report could push the Fed toward a more restrictive stance.

The speakers say market expectations for an October Fed hike fell after officials’ comments despite the inflation data, but one argues the bar for not hiking is high and that giving up October optionality could mean doing more later, raising the risk of over-tightening. Another expects more forecasters may cite inflation expectations—which had drifted to about 2.5% over five years—as a reason to hike by December.

The speaker argues that divided government could shift policy risk toward less predictable executive actions, including tariffs, rather than eliminate it; they do not expect a return to “liberation day.” A Democratic Senate could also make it harder to confirm aligned replacements, including for bank regulatory posts, while foreign leaders may wait out Trump after the midterms and renewed tariff threats could follow.

GEO-POLITICS

Affordability Politics — The speaker says cost of living remains voters’ biggest issue, and many blame Trump’s policies, including tariffs and energy pass-through, for worsening affordability. Democrats are polling well: the House is trending more clearly toward them, while the Senate remains competitive but is moving in their favor.

“I mean, it's cost of living. It still remains the biggest issue, and that's sort of tied into…”—

Spending And Debt — The speaker says Republicans could use their expected, fleeting period of unified control to pursue another reconciliation package that might address the debt limit. Iran-related decisions could also require significantly more defense spending, depending on what Trump decides to do.

“So are they gonna actually try to pursue, and are they gonna be able to deliver another reconciliation package?…”—

Tariff Negotiations — The speaker says foreign leaders may view Trump as a lame duck after the midterms and try to wait him out. That could prompt renewed tariff threats to restart negotiations and encourage follow-through on commitments, though the speaker presents this as a possibility, not a certainty.

“I think the thing to watch after the midterms is, you know, other foreign leaders are gonna look at Trump as a limp duck too…”—

ECONOMY

Persistent Inflation — The speaker argues that the longer inflation stays above 2%, the harder it becomes to bring it back to that level because inflation is inertial and sticky, particularly outside commodities. The speaker sees a risk that inflation remains sticky for longer.

“The longer inflation remains above 2%, the more difficult it is to bring it back to 2%. Right? Because inflation is a process…”—

Core PCE Pace — The speaker estimates that September’s CPI and PPI inputs imply a 0.34% increase in core PCE. If repeated for a full year, that would equal just over 4% annualized—roughly twice the Fed’s target.

“When you kind of take the inputs from CPI and PPI and you make an estimate for core PCE, it comes in at 0…”—

Fed Meeting Timing — The speakers say Fed officials’ public comments lowered market expectations for an October hike, despite the data, and that the bar for not hiking in October is high. One speaker argues that dropping October optionality could mean doing more later and risk eventual over-tightening.

“I don't think it was wise to remove the optionality around October, which is what a number of the Fed officials did, but I do think know forgoing meetings just…”—

MARKETS

Defensive Advance — The speaker describes an equity-market advance with broader participation, led by defensives while energy and technology fell. About 800 Russell 1,000 stocks were up and 200 were down.

“You know, I thought yesterday, most interestingly, was we had an expansion in breadth, twenty day highs expanded, not to our levels, but, you know, you had good breadth figures…”—

Credit Conditions — Credit conditions were mixed: double-B spreads improved by about four basis points, while triple-C spreads continued to widen. The speaker says private-credit stress appears to be building, although redemptions have cooled and eased some pressure without substantially improving conditions.

“Yeah, you had a modest improvement. And when I say modest, think it was like four basis points in double B spreads. So that's nothing, but triple B…”—

Equity Allocation — The speaker argues that a real yield near 3% means investors may need less equity exposure to reach a 7%–8% target. Lower equity allocations could come back into consideration after roughly 15 years, the speaker says.

“Right? Should it be tilted more towards bonds? Should be tilted more towards stocks?…”—

FORECASTS

Treasury Yield Threshold — The speaker says a 10-year Treasury yield would need to move through 5% before they would consider whether technical damage had changed the trend and the 10-year yield might have peaked. The speaker also asks whether a six-week Fed delay could give long-end yields more room to rise as inflation expectations affect longer-duration bonds.

“It didn't change anything for us…”—

RenMac Show Opening

The hosts welcome listeners, discuss RenMac merchandise and baseball, and introduce the week’s economic and inflation data.

Core PCE And Fed Risk

The speakers estimate September core PCE at 0.34% and argue that persistent inflation could leave the Fed needing to tighten more later.

Sticky Inflation Expectations

Neil says inflation remains inertial, notes rising household and professional expectations, and warns that the Fed should be concerned about the trend.

Bond Yields And Market Breadth

Jeff says the market absorbed a poor inflation reading relatively well, but cautions that defensive leadership and weak technology momentum complicate the picture.

Credit Stress And Real Yields

The speakers describe mixed credit signals and cooled private-credit redemptions, while explaining how near-3% real yields could support a lower equity allocation.

Midterm Affordability Risks

The speakers link affordability concerns, tariffs, and energy costs to Republican electoral challenges and discuss how a post-election Congress could constrain Trump.

Good News And Fed Policy

Neil argues that strong growth can be bad news for markets while inflation is elevated, and Jeff adds that crowded bullish positioning can amplify market reactions.

Energy Risks And Housing Data

The panel watches geopolitical energy disruptions and campaign announcements, while Neil highlights housing indicators and a gap between strong surveys and weak production data.

Semiconductor Weakness Watch

Jeff tracks credit, yield-curve signals, semiconductor weakness, and upcoming earnings, while cautioning that current oversold signals are fragile and not yet convincing.