Be the Ball

The end of forward guidance is not adding volatility but removing deleterious volatility suppression and restoring normal market function.

Wealthion Video with Maggie Lake

In this week’s note:

· Be the Ball Billy: This week’s note frames Chairman Warsh’s reaction function as a shift away from Phillips Curve demand management and toward a supply-side, market-price framework rooted in Friedman’s critique of the inflation/employment tradeoff. It argues rate hikes are unlikely in 2026, and if inflation fails to cool, tightening will more likely come through balance sheet policy than higher policy rates.

· Sustainability: The market, rather than the Fed, is beginning to discipline the AI infrastructure boom through higher real rates, wider hyperscaler credit spreads, and weaker stock prices. A rate hike would likely have created counterproductive effects, while market-driven tightening better addresses excessive capex without crushing the broader economy.

· Disinflation: Notwithstanding the benign June PCED report, we remain skeptical of the PCE deflator because of revisions, pandemic-distorted seasonals, and unusual divergence from CPI, while alternative inflation measures are cooling. Seasonally soft non-housing service prices, tariff rebate downward pressure on goods prices, and shelter disinflation should move CPI close to the 2% target and leave little case for rate hikes by the September meeting.

· Shrinking the Footprint Revisited: The balance sheet privatization plan depends on a steeper curve, bank regulatory relief, and a gradual transfer of duration and mortgage prepayment risk from the Fed to private sector balance sheets. The end of forward guidance is not adding volatility but removing volatility suppression that should only be utilized during a financial crisis and is contributing to restoring normal market function.

· OBBBA Stimulus Effect: Core domestic demand rebounded sharply in 2Q as goods consumption recovered, likely reflecting OBBBA-related individual provisions offsetting other headwinds. However, we expect consumption to cool in 2H26 as stimulus fades and the labor market remains softer than the FOMC assumes.

· Boom Boom Out go the Lights: The collapse of an overleveraged AI-related fund may have marked a short-term low in the AI theme, especially as capex growth decelerated without outright cuts. Still, while we were tempted to add a modest amount of technology sector exposure, we remain cautious because of ROIC questions, valuation compression, rising real rates that could trigger a broader market pullback.