Macro & Market Musings | 9/4/26

Comments based on information available as of 8:30 a.m. CT on September 4, 2026.

Growth: Growing With or Without Hiring

August’s nonfarm payroll number flew in the face of the “no-hire, no-fire” claims. However, we have learned that jobs numbers get revised, sometimes by a lot. The economy increasingly looks like it is learning to grow with or without adding many workers. The ISM Manufacturing Index remained firmly in expansion territory at 54.6 in August, while the much larger services sector accelerated to 55.4 and new orders surged to 60.9, their strongest reading in more than three years. The Atlanta Fed now estimates third-quarter growth at greater than 4.7% annualized pace, including 3.8% growth in consumer spending. Productivity helps explain how the economy can grow without adding a lot of headcount. Output per worker is up 2.2% over the past year. Businesses seem to be asking existing workers, technology, and capital to do more rather than automatically adding headcount. That can support profits and economic growth.

Inflation: Geopolitical Limbo

Renewed fighting between the U.S. and Iran pushed Brent crude oil back above $91 a barrel. Traffic through the Strait of Hormuz remains heavily constrained. With the labor market, economists have talked about a “no hire, no fire” situation, but with oil prices it seems to be a “no war, no peace” situation keeping oil prices elevated and volatile in a type of geopolitical limbo. The Federal Reserve’s Beige Book confirmed that manufacturers and construction firms are experiencing price pressures from energy, raw materials, and transportation. Consumer-facing businesses reported that customers are price sensitive and firms are limited in their ability to pass on higher input costs. What doesn’t show up in consumer prices shows up in costs cuts elsewhere or crimped profit margins.

Policy: Spinning in Circles

Chair Warsh refuses to give forward guidance, but markets have decided to give it to themselves. Rate-hike odds for the September 15–16 meeting have roughly doubled since his Jackson Hole speech, from about 36% to the mid-60s, and the 10-year Treasury yield climbed to roughly 4.8%. This is the Warsh method working as designed: he has said he wants an “unfiltered message from markets,” letting buyers and sellers set prices and then judging what that means for policy. The unfiltered message right now is that investors take his inflation concern seriously and are pricing a quarter-point hike as more likely than not. The market is clearly still concerned about what the Fed may or may not do. That is not going to change no matter how much Chair Warsh wants to change it. The Fed wants to watch the market for signals, but the market will always be on the lookout for what the Fed will do. Instead of having the market wonder how the Fed interprets the data, the market now needs to worry about how the Fed interprets the market itself. That type of circularity can lead to more volatility that can’t be wished away.

Looking Ahead: Shifting Sands

The last move by the Fed was a cut in December. It has been on hold ever since, but a September hike would reverse the direction of monetary policy altogether. That would matter more than the quarter-point itself. Investors have enjoyed a rally supported by strong earnings, AI investment, improving productivity and the assumption that, at worst, the Fed would stay out of the way. A hike could raise an uncomfortable question: is this one adjustment to make sure inflation keeps falling, or is it the beginning of a renewed tightening cycle? The rally does not necessarily end if rates rise, especially if growth and profits remain strong, but valuations are easier to support when the Fed is cutting or pausing than when investors have to start penciling additional hikes back into the equation. The economic foundation still looks solid. The monetary-policy ground underneath it may be starting to shift.

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