Markets Rally as Fed Governor Waller Points to Disinflation

Watch on YouTube ↗ | September 03, 2026 at 16:10 | 2:24:13 | Bloomberg Markets

Speakers

Keith Lerner — Chief Investment Officer, Truist Wealth

Ed Mills — Washington Policy Analyst, Raymond James

Jayati Bharadwaj — TD Securities Head of FX Strategy

Emily Roland — Co-Chief Investment Strategist, John Hancock

Tony Rodriguez — Head of Fixed Income Strategy, Nuveen

Ohsung Kwon — Chief Equity Strategist, Wells Fargo

Michelle Meyer — Chief Economist, Mastercard Economics Institute

Abby Yoder — JPMorgan

Frank Lee — Analyst, HSBC

Jonathan Ferro — Anchor, Bloomberg Television

Nela Richardson — Chief Economist, ADP

Steve Odland — CEO, The Conference Board

Adam Hodge — Managing Director, Bully Pulpit International

Michael McKee — International Economics & Policy Correspondent, Bloomberg

Summary

The episode focuses on the Fed's near-term rate decision, oil-driven inflation risk from Iran, yen strength on BOJ hike expectations, and the tension between AI capex demand and higher rates. Several strategists argue that yields near 5% are attractive for duration, while others see downside in semiconductors and AI valuations. Waller makes clear the September decision hinges on the upcoming CPI report.

Fed Governor Chris Waller says the September rate decision hinges on the August CPI, with continued progress supporting a hold and hot inflation supporting a hike.
Brent crude near $97 and elevated diesel prices reflect Iran-related supply risk, with potential escalation after the midterms.
Japanese yen strengthens on BOJ hike expectations and potential carry unwind; strategists favor yen and South African rand while watching Brazil and avoiding MXN.
Labor data show a cooling but not cracking job market, with wage growth not spilling into inflation.
Fixed income strategists see 5-6% yields and 10-year fair value near 4-5% as reasons to extend duration.
Wells Fargo warns AI capex could peak in 2027 and semiconductors may fall another 10%.
Mastercard data suggest July retail weakness was an aberration and August consumer spending normalized.
Higher rates are seen as a potential cap on AI stock valuations even as AI revenue accelerates.

Ideas

Keith Lerner Chief Investment Officer, Truist Wealth 5:03

Earnings keep equity bull market intact.

The primary equity uptrend remains intact because earnings will ultimately support the market; valuations have reset lower while earnings estimates keep being revised higher, and a single quarter-point Fed move is manageable, whereas a series of hikes would be the real risk.

Ed Mills Washington Policy Analyst, Raymond James 20:14

Iran escalation keeps oil risk premium.

The ongoing Iran conflict places repeated upward pressure on oil prices, and the chance of escalation rises after the midterms as political pressure fades; global spare capacity keeps prices around the $90s rather than $120 or higher, but low inventories and stretched diesel markets keep the risk premium persistent.

Jayati Bharadwaj TD Securities Head of FX Strategy 32:22

BOJ hikes will strengthen yen.

BOJ rate hikes are the only sustainable way left to reverse yen weakness; officials are expected to signal a more aggressive hiking path, which is driving an unwind of extreme yen short positions and supports further yen strength.

Jayati Bharadwaj TD Securities Head of FX Strategy 36:39

CAD and CHF become carry funders.

A larger yen carry unwind would shift funding to currencies where central banks are least likely to hike; she thinks the Canadian dollar and Swiss franc become the next preferred carry funders, implying they should weaken.

Jayati Bharadwaj TD Securities Head of FX Strategy 37:29

Buy Brazil real after election risk.

She likes the Brazilian real as a long-term carry trade but would wait until after the second round of the presidential election because headline risk makes the period before every election the worst time to be long.

Jayati Bharadwaj TD Securities Head of FX Strategy 37:54

Mexican peso is too crowded.

The Mexican peso is looking crowded, implying less attractive risk/reward and vulnerability relative to other carry currencies.

Jayati Bharadwaj TD Securities Head of FX Strategy 37:57

South African rand has more upside.

South African rand is a favored carry currency for clients because it has more room to outperform, is well diversified by commodities, and benefits from ticking commodity prices.

Emily Roland Co-Chief Investment Strategist, John Hancock 55:59

Hated bonds are attractive now.

Bonds are deeply hated and yields have become attractive at 5-6%; she suggests leaning into the intermediate/belly of the Treasury curve rather than staying in cash-like short maturities because higher yields have a self-limiting effect on the economy and investors tend to hate bonds right before they love them.

Tony Rodriguez Head of Fixed Income Strategy, Nuveen 92:43

Ten-year yields fall toward 4%.

He sees fair value for 10-year Treasury yields around 4% and a near-term equilibrium around 4.5%, below current levels; inflation softness in housing and goods supports lower yields and supports the long end.

Ohsung Kwon Chief Equity Strategist, Wells Fargo 103:49

Semiconductors could drop another 10%.

AI capex is entering a late-stage cycle and the economy may be too small to justify all the spending; semiconductors are the most vulnerable part of the market and could fall another 10% as investors shift focus to 2028 sustainability.

Frank Lee Analyst, HSBC 117:07

Higher rates cap AI stock valuations.

Higher rates raise borrowing costs and will put pressure on AI stock multiples, capping valuations even if AI capex plans continue; he would look for companies with independent earnings upside.

Michelle Meyer Chief Economist, Mastercard Economics Institute 130:30

Consumer spending rebound supports retail.

Consumer spending is stronger than the July retail sales slowdown suggested; August spending normalized back to near 8% year-over-year retail sales growth, with participation across income levels, supporting US consumer-facing equities.

Abby Yoder JPMorgan 140:06

AI revenue acceleration overpowers higher rates.

AI-related revenue acceleration for hyperscalers is strong enough to override higher-rate pressure for now; a nine percentage point increase in revenue growth is huge and is what the equity market is hinging on.

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