The Decision™
July 27, 2026 I’m not a gambler. I hate taking risk on chance. I figure owning my own businesses is risky enough, throwing money at the spin of a roulette wheel or betting on some dudes to play a certain way just isn’t fun for me. Plus, my deal with The Real Boss™ is that for every dollar I lose betting she gets to spend on Aviator Nation.
But I knew LeBron was going to the Cavs. I knew it. I could see the documentary in my head…LeBron meeting with the Heat, the Warriors, the Sixers...“but in the end, I always knew I was coming home…” Sweeping Cleveland skyline. Fade to black. See you at the ESPYs.
I didn’t buy the Heat press conference leak, but I woke up Friday morning and wondered what the odds of him going to the Cavs were…4:1. “That’s free money!” The Heat leak had pushed markets aggressively to Miami.
So I created a Kalshi account. Someone was trying to look out for me because my bank actually blocked it, “Ummm, this is abnormal for you, JP.” So I had to take extra steps to make this happen. But I was determined to get that free money, so I refused to give up. I made my bet on LeBron to the Cavs.
While I was in there, I searched for “Fed rates” and sure enough, you can bet on the FOMC rate decisions. 3:1 of no hikes this year. I was way less certain about this one, but I figured I should put my money where my mouth was. I put half as much on this as I did on LeBron.
Six hours later, Shams breaks the news. Money gone. LeBaby to my team. You could have offered me 20:1 on the Sixers and I wouldn’t have taken it. I was immediately reminded of why I don’t gamble.
I knew he was going to the Cavs...and got spanked. I think the Fed isn’t hiking this year, but my Kalshi track record is pretty awful right now.
The Decision. Shams won’t be the one to break the news on Wednesday, but The Real Boss™ will be paying close attention. She’ll probably be watching in her new AV autumn lineup gear…
Last Week This Morning
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10T: 4.67%
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2T: 4.33%
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SOFR: 3.64%
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Term SOFR: 3.74%
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Tariffs again? I could have sworn the Supreme Court had handled this
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Dear Tony Romo – I am glad you’re ok and no one got hurt, but exactly how drunk do you have to be to get a DUI in Wisconsin?
Fed Meeting - Wednesday
This is the most uncertain I’ve been about a Fed meeting in a long time. Fed signaling has been very intentional for 20 years and market probability of 60% had become the number to watch. Once odds exceeded 60%, the Fed would speak up before the meeting if they disagreed. The most notable example was Bill Dudley’s Bloomberg Op-Ed two years ago to signal a 50bps cut. Market odds of a cut were 40% on Sunday and Monday morning his piece was published, just two days before the Fed meeting. Market odds shot to 70% and the Fed cut 50bps that Wednesday. I used this 60% rule to take money off of my buddy Mark in Hermosa.
But Warsh is opposed to Fed signaling. Odds of no change are 65%, but that means way less than it used to. Odds of no change through the September meeting are just 18%, and through year end just 7%. Wait, then why did I only get 3:1? I hate gambling!
Warsh keeps saying he wants a good family fight at the Fed, but I don’t buy that. He’s been attacking these Fed officials for a long time, so he was going to get a good family fight whether he wanted one or not…he might as well claim it’s part of his plan. “I love when The Real Boss™ spends exorbitant sums of money on Aviator Nation!”
I have way more questions than answers heading into this FOMC meeting. Stream of consciousness:
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Does the Fed believe hikes now reduce the need for future hikes?
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I had gotten very comfortable reading Powell, but I don’t know what to expect out of Warsh.
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I don’t know how much reading Warsh matters since Fed officials won’t rally around him the way they did Powell…seven votes changes rates and he only has one vote. Will Warsh get outvoted?
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Does Warsh want to punch markets in the mouth and send his own signal?
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Warsh is obsessed with inflation, which made him an odd choice by a president that wants lower rates. How long will Trump bite his tongue?
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We get Core PCE and Q2 GDP the day after the meeting, but the Fed usually gets a sneak peek ahead of a decision. How will that play into their decision? Remember, we got CPI two weeks ago and it was much cooler than expected following the temporary ceasefire in Iran.
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Two weeks ago on Bloomberg, was SMBC Chief Economist (and former WH eco advisor) Joseph Lavorgna signaling the market when he said Trump would be fine with a hike because it would likely push down T10 yields?
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One year ahead inflation expectations are up, but longer-term expectations are flat. Powell would have called that out as a reason not to hike yet.
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Holy cow, Powell is still on the FOMC.
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Last month’s inflation data should give the Fed all it needs to look past the recent spike in oil, but I’m not sure they will
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Warsh really wants to reduce the Fed balance sheet (QT) and I wonder if he’ll argue that’s a better mechanism to tighten rates than a rate hike
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Would a surprise hike help offset the tariff-price-rollercoaster effect out of the WH?
How much emphasis will Warsh place on the length of time Core PCE has been above 2%? I believed strongly that Powell wasn’t willing to push the unemployment rate to 6% to get inflation to 2%, but Warsh may be more inclined to say, “It’s been 5+ years, it’s time.”
Three Graphs I Care About the Most
Divisia M4 Money Supply – don’t worry, I’m not going to rehash last week’s deep dive into monetarism. But I think it’s critical money supply fanboys quote the rest of Friedman before calling for a hike. "Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." Inflation is the result of money supply growing faster than the economy can handle, not just money supply growth. Even this dumb state school kid can detect the anomaly of money supply growth in this Divisia M4 graph…
Inflation Components - would a hike try to solve a problem we don’t have? Monetary policy impacts demand side inflation. Here’s the San Francisco Fed’s Supply vs Demand components of Core PCE. Blue is demand and it has been flat for 3 years. Will this Fed hike because it is mistaking AI capex spending as a broader inflationary issue?
Trimmed Mean Inflation – the Dallas Fed publishes an alternative measure that tries to minimize the noise. Claudia Sahm wrote a great article last week highlighting that Warsh hasn’t really committed to using the Fed’s stated measure of inflation, Core PCE (Sahm). Specifically, he keeps referencing “underlying inflation,” which is not an official thing. There’s no measure for it, it’s not a defined term, the Fed’s explicit target doesn’t reference it. She argues it is unlikely he is accidentally using this phrase, which will create confusion about what inflation we should be monitoring. Warsh has repeatedly mentioned Trimmed Mean PCE as a better measure for identifying the broad, persistent inflation trend because one-off shocks in any category have less influence. Does this graph scream, “hike!”?
Rates
I expect the Fed to be on hold this week and I think there’s a chance it’s a little less hawkish than everyone else thinks. CPI was much cooler than expected and the jobs report at the start of the month was disappointing. But as the LeBron news showed, I am not exactly dialed into The Decision.
It’s not a coincidence that T10 broke 4.7% and retraced. The upper end of the resistance level is 4.66% and I suspect we will keep bumping up against that level until the meeting. If The Decision causes rates to break higher, the next stopping point is 4.81%...and then 5%. Gulp. I was on a panel a few months ago and one of the guests was asked what would happen if the T10 got to 5%? “That would be catastrophic.” Yay.
It’s not just here, rates around the world are surging.
The Week Ahead
Huge week. News on Iran continues to swing markets, Wednesday brings the next Fed meeting, and Thursday brings Core PCE and GDP.
At the top, I asked how drunk you have to be to get a DUI in Wisconsin.
This drunk.
