Sep 16, 2026 · 38 min
Markets debate whether higher rates are here to stay
The Fed, Rate Hikes, and AI
The answer could reshape bond valuations, equity multiples, and the sectors investors favor as fiscal support fades.
- 1The Fed’s rate increase may signal a durable higher-rate regime rather than a one-off adjustment.
- 2A nominal economy favors infrastructure, commodities, and real estate while challenging fixed-income investors.
- 3AI spending supports growth but raises valuation, semiconductor-cycle, regulation, and cybersecurity risks.
Don't miss
Alicia Levine links fading fiscal support to slowing nominal growth while arguing that infrastructure, commodities, and real estate remain better positioned than fixed income.
The brief
Stephen Major weighs whether the Fed’s rate increase is a one-off move or the start of a higher-rate regime, with Treasury yields and inflation expectations at the center.
Major argues that historically high real yields make TIPS attractive, but warns they can suffer in a risk-off market when liquidity disappears.
Alicia Levine describes a return to a more nominal economy, where higher inflation and industrial activity pressure equity multiples and favor real assets over fixed income.
The AI boom complicates the outlook: imported chips boost growth, but semiconductor cyclicality, Nvidia’s valuation, regulation, and cybersecurity risks temper the investment case.
The discussion closes on fading fiscal support, slowing nominal growth, and a Federal Reserve split between persistent-inflation and temporary-shock interpretations.
What was said on this episode
31 statements · 12 positive · 16 negative · 1 mixed · 2 neutral
The Fed may deliver one hike before resuming easing next year.
“I could see one hike and then next year we could we could be back into the easing mode.”
Listen at 4:07
Ten-year Treasury yields will be nearer four than six percent in a year.
“I'd say nearer to four than six.”
Listen at 4:37
The Fed is unlikely to commit to a series of rate hikes.
“committing to a series of rate hikes is very unlikely here.”
Listen at 6:04
TIPS offer good value at a three-percent real yield.
“tips should be good value with a 3% real yield.”
Listen at 6:52
Investors should favor nominal Treasuries over TIPS.
“I think the positioning should favor nominals.”
Listen at 7:10
Relegation causes sports teams’ television and sponsorship revenue to collapse.
“the revenues and the income from TV and sponsorship, it collapses when you get relegated.”
Listen at 9:20
AI bots will not replace investment strategists in this environment.
“an AI bot will not take the place of a strategist because of that.”
Listen at 13:24
A Fed hike will not end the equity bull market.
“I don't think it ends the bull market”
Listen at 13:36
Rate hikes are not beneficial for equity valuation multiples.
“hikes are good for multiples.”
Listen at 13:41
Investors should buy the broad equity index rather than select sectors.
“You're best off, I think, just buying the index”
Listen at 14:15
S&P earnings are forecast at about $430 per share next year.
“we've raised our earnings for next year for mid-range about... $430 an S&P share. We were at $395.”
Listen at 14:31
S&P price targets remain unchanged despite declining valuation multiples.
“Our price targets have not changed on the S&P because we have to confront the fact that the multiple is moving lower.”
Listen at 14:45
Rate hikes will marginally reduce economic growth rather than inflation.
“it's going to affect growth on the margin.”
Listen at 16:44
The investment allocation to real assets was recently increased.
“we just raised our allocation to real assets about two months ago.”
Listen at 16:54
Investors need real assets in a persistently nominal economy.
“you need real assets in a nominal world.”
Listen at 17:39
AI investment contributes roughly one-third to one-half of U.S. GDP this year.
“it definitely drives gdp yes because it's about one third to one half of us gdp this year”
Listen at 18:15
Investors should retain their Magnificent Seven technology holdings.
“In the end, you keep the holdings.”
Listen at 19:24
Investment in AI will continue.
“the investment will continue.”
Listen at 19:34
The portfolio is underweight fixed income.
“We are underweight fixed income.”
Listen at 20:10
The current semiconductor upswing is exceptionally strong.
“this is the strongest semiconductor upswing cycle any of us have ever seen.”
Listen at 21:46
Nvidia will underperform other semiconductors and AI companies.
“it's just going to underperform the the rest of the semis the rest of the ai complex”
Listen at 22:39
OpenAI and Anthropic tools pose serious cybersecurity threats.
“there are very serious cybersecurity threats capable from their tools.”
Listen at 23:53
AI companies or regulators will need to establish safeguards.
“there's gonna have to they're gonna have to do something here”
Listen at 24:31
Moore’s law may not continue much longer at its historical pace.
“I'm not sure how much longer that goes on”
Listen at 25:02
Alicia Levine agrees inflation is primarily driven by temporary shocks.
“I'm in the Waller camp.”
Listen at 28:59
The revised PCE deflator trend may be revised downward.
“how much will the trend be revised down.”
Listen at 31:32
The housing market is not currently generating inflation.
“There's no inflation out of the housing market.”
Listen at 33:42
Money, housing, and labor markets are experiencing disinflation.
“you're seeing disinflation in those three principal areas of the economy.”
Listen at 34:12
Nominal GDP growth will decelerate.
“I expect that nominal GDP growth will be decelerating”
Listen at 34:38
Post-midterm fiscal gridlock will reduce aggregate demand.
“fiscal gridlock that's going to replace six years of unrelenting fiscal stimulus, and that's going to cut an aggregate demand.”
Listen at 35:06
Nominal GDP growth will remain positive.
“nominal GDP growth is not going to go negative.”
Listen at 35:23
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.