This Week
The main themes this week were the Federal Reserve’s interest‑rate outlook and the escalating Iran situation.
Regarding the Fed, two developments stood out:
- Fed Governor Chris Waller indicated he would be willing to hold rates steady if the recent disinflation trend persists, remarking, “to paraphrase John Lennon… give disinflation a chance.”
- The economy added 162,000 jobs in August, reinforcing Chair Kevin Warsh’s prior comment that inflation remains the Fed’s primary focus. This figure nearly tripled the forecast of 55,000 jobs, and upward revisions to the prior two months turned July’s job change positive. Consequently, market expectations for Fed rate hikes this year have risen to almost 40 basis points, up from below 30 bp.
Naturally, the Iran conflict is not helping the Fed’s inflation fight.
Over the past week, U.S. oil prices have climbed more than $5, pushing back above $90 per barrel — close to three‑month highs. This follows dwindling hopes for a near‑term ceasefire after continued U.S.–Iran exchanges of strikes and additional attacks on oil tankers in the Strait of Hormuz. Reports also suggest the Trump administration would not reinstate the expired Memorandum of Understanding and would instead demand an agreement covering both the Strait of Hormuz and Iran’s nuclear program.
Elsewhere, the second‑quarter earnings season concluded with mega‑cap AVGO surpassing earnings estimates, delivering nearly 100 % annual growth and helping the Nasdaq‑100® post close to 80 % annual earnings growth for the quarter.
Despite the robust earnings performance, worries about inflation and prospective rate hikes kept markets flat, with the Nasdaq‑100® ending the week unchanged and the 10‑year Treasury yield rising about 5 bp to 4.8 %.