Aug 26, 2026 · 50 min
Strong growth puts Fed cuts and Treasury yields in tension
Reacting to PCE and Market Look Ahead
The episode connects sticky inflation, resilient demand, fiscal spending and geopolitical risks to the outlook for interest rates, bonds and energy markets.
- 1Stronger nominal growth and persistent price pressures complicate the Federal Reserve’s path while ten-year Treasury yields could briefly reach 5%.
- 2Broadening growth, consumer resilience and AI investment shift equity focus toward company earnings, especially Nvidia’s upcoming results.
- 3Iran sanctions, China’s oil purchases and Strait of Hormuz risks expose the limits of economic pressure and reshape energy-market valuations.
Don't miss
Dan Tannenbaum explains why Washington could target a Chinese financial institution over Iranian oil but has historically avoided meaningful sanctions on China.
The brief
Morgan Stanley’s Vishal Khanduja argues that absent a clear deficit-reduction plan, AI capital spending could crowd out Treasury demand and briefly push ten-year yields to 5%.
The latest PCE and GDP data show stronger-than-expected price pressures, resilient consumers, fiscal support and unusually strong nominal growth, leaving the Fed to separate structural from cyclical inflation.
Michael Ball sees growth broadening beyond AI, while equity investors await Nvidia earnings and Jackson Hole for evidence on the investment cycle and monetary-policy path.
Tobin Marcus links economic and foreign-policy choices to the midterms, including limited Iran sanctions, China’s Iranian oil purchases and politically concentrated effects from Canada’s tariffs.
Energy investor Ben Cook and sanctions expert Dan Tannenbaum describe a market reshaped by refinery constraints, Hormuz leverage and the difficult choice between pressuring China and protecting global stability.
What was said on this episode
39 statements · 20 positive · 14 negative · 1 mixed · 4 neutral
The U.S. government still lacks a clear deficit-reduction plan.
“we still don't have a very clear plan for deficit reduction”
Listen at 2:54
Corporate AI debt is marginally crowding out Treasury demand.
“It's definitely happening on a margin.”
Listen at 3:39
The U.S. ten-year Treasury yield may briefly reach 5%.
“we might spike to five on the 10-year”
Listen at 4:32
Broad-based disinflationary pressures are present in the economy.
“We do see very clear-cut, broad-based disinflationary pressures in the economy.”
Listen at 4:42
U.S. ten-year Treasury yields are near a peak at current levels.
“we are topping up in yields at these levels on the 10-year in the U.S.”
Listen at 5:06
Fixed investment will remain strong through CapEx, reshoring, and defense spending.
“we're going to still have this fixed investment boom from CapEx and from the reshoring and from the defense spending”
Listen at 10:15
The Fed needs to distinguish structural inflation from cyclical inflation.
“we need to talk about what the actual structural inflation story is versus what the cyclical story is”
Listen at 10:54
The U.S. economy is growing above trend.
“we are looking at an economy that is above trend”
Listen at 11:59
Above-trend growth and sticky inflation create a problem for the Federal Reserve.
“That is a problem for the Fed, given that inflation remains stickier”
Listen at 12:02
Equity-market gains are broadening into cyclical sectors.
“it's about a broadening and a rotation into more cyclical parts of it”
Listen at 13:29
AI capital spending is producing less marginal computing capacity per dollar.
“every kind of buck they're spending in CapEx now gets less marginal compute”
Listen at 14:24
U.S. consumer resilience continues despite concerns about savings and credit.
“the resilience of the consumer has kind of baffled everyone and it continues”
Listen at 14:47
Reducing economic growth is not urgent for the Federal Reserve.
“one would argue not urgent or they would have gone in july”
Listen at 15:13
The Fed should avoid harming consumers through rate hikes and tighter financial conditions.
“We don't want to step on sort of the overall consumer by raising rates and tightening Main Street”
Listen at 15:23
NVIDIA earnings may help settle divergence within AI-related equities.
“what we need from NVIDIA is maybe to settle some of that”
Listen at 16:29
Broader semiconductor participation is needed for healthier market breadth.
“more participation because that really has been a laggard sort of”
Listen at 16:38
Jackson Hole may not produce a major market risk event.
“Jackson Hole is starting to smell like it may not be a risk event”
Listen at 17:22
A Jackson Hole status quo would probably produce a more dovish Fed tilt.
“which means it's probably a more dovish tilt to the Fed”
Listen at 17:29
A more dovish Federal Reserve stance would support stocks.
“which is good for stocks”
Listen at 17:33
Jackson Hole speeches historically do not cause a large one-week market move.
“there tends not to be a gigantic move a week post that presser”
Listen at 19:48
The Philadelphia Semiconductor Index has fallen nearly 20% since June 22.
“the SOX is down close to 20%”
Listen at 21:50
NVIDIA trades at a forward P/E near 18.8, below Hershey and the S&P 500.
“it's around 18.8 for NVIDIA, and it's a little less than 20 for Hershey's and for the S&P 500”
Listen at 22:34
Trump administration policy is not primarily driven by the midterm elections.
“I don't read it as particularly closely driven by the midterms”
Listen at 25:42
Bessent has not demonstrated resolve to force long-term yields lower.
“I'm not reading anything he's said or done as projecting the kind of whatever it takes resolve that you would really need”
Listen at 27:18
China will not change its behavior because of additional Iran sanctions.
“I have no expectation that China is going to alter their behavior in any way based on this”
Listen at 28:26
The planned Trump-Xi summit will proceed despite recent U.S. export controls.
“I suspect that that. Summit will go forward”
Listen at 29:09
U.S.-Canada relations will eventually recover.
“I do ultimately think that the relationship is going to get back on track.”
Listen at 29:55
USMCA will probably be extended with revisions next year.
“I think the USMCA will be. extended with some revisions probably sometime next year.”
Listen at 29:57
Canada’s tariffs will not create concentrated industrial impacts in the United States.
“I don't see any concentrated industrial impacts.”
Listen at 30:19
The investment case for U.S. midstream energy is exceptionally strong.
“we think that the investment case for midstream today is as strong as it's ever been”
Listen at 32:56
Refined-product prices will remain strong.
“we think the strength in those refined product prices will continue”
Listen at 34:31
U.S. refined-product supply cannot easily increase without reducing demand.
“Short of killing demand, there's really not an easy way to add supply to the market.”
Listen at 35:05
The Trump administration is expediting U.S. pipeline permitting.
“the Trump administration is doing a lot to expedite that process”
Listen at 36:32
Iran is unlikely to relinquish control of the Strait of Hormuz.
“it's hard to imagine them ceding the control of the strait”
Listen at 37:00
Energy’s earnings contribution implies a 7–8% S&P 500 weighting.
“That would imply roughly 7% to 8%.”
Listen at 38:02
The United States may sanction a Chinese financial institution facilitating Iranian oil purchases.
“The question is, will the U.S. move forward and go at, let's say, a Chinese financial institution”
Listen at 42:19
U.S. sanctions policy must balance pressure against global economic disruption.
“what can you do that's significant enough that doesn't create unintended consequences”
Listen at 44:28
Iran is experienced at surviving under sanctions.
“They're good at managing their existence under sanctions.”
Listen at 47:14
A U.S.-Iran agreement is highly unlikely before the midterm elections.
“It's highly unlikely that there would be an agreement between the U.S. and Iran before the midterms”
Listen at 47:47
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.