Building Early

Aside from tariffs and inflation, one of the hottest topics from 2025-present is interest rates. Futures are pricing in zero rate cuts for the rest of 2026. A quick 180 from the certainty earlier this year that more cuts were coming. On paper, good news. The Fed is finally letting the data speak. The problem is Kevin Warsh. Trump's pick for Fed chair just told the Senate he wants to overhaul how the Fed measures inflation. Out with core PCE (currently reading 3%). In with "trimmed mean" inflation, which strips out outliers and conveniently reads 2.3%. Same prices. Different ruler. If you change the measurement until inflation looks tame, you can justify cuts that the actual economy can't support. That is the whole game. And here's where it gets concerning. Rate cuts are usually framed as bullish, but most of the time the cut is already priced in. The median S&P return in the 30 days after a cut is -0.31%. The 12-month return only looks good when cuts come during a slowdown. Right now we don't have a slowdown. We have inflation reaccelerating, gas at $4+, and a market trading near a Shiller P/E of 40. Cuts into THIS economy don't fix anything. They pour gas on it. Short term? Probably new ATHs. Lower mortgage rates. Production picks up. Everyone wins for a few quarters. Then the bill comes. I'm not calling a top. I'm saying watch Warsh closely. If he gets confirmed and starts pushing the trimmed-mean framing into Fed comms, the cuts are coming whether the data supports it or not. That's the actual risk nobody is pricing in.

🇺🇸 Today, Jerome Powell will deliver his last FOMC press conference as Federal Reserve Chair.