The Week in Charts (9/21/26)

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The most important charts and themes in markets and investing…

1) The Moment of Truth

It was the moment of truth for Kevin Warsh and the Fed.

Would they prove their independence and start to regain credibility as an inflation fighter or would they reinforce those nagging doubts?

The answer to that question was revealed last Wednesday.

The Fed’s unanimous 12-0 decision to hike interest rates by 0.25% sent a clear message to markets: they have a job to do and are not beholden to the president, the treasury secretary, or anyone else.

At the post-announcement press conference, Kevin Warsh had this to say:

“For more than five years, inflation has been running above target. The plain fact is that inflation is too high and has been for too long.”

He made similar remarks at the previous two FOMC meetings and also at Jackson Hole, but this time his words were backed up by actions.

The Fed Funds Rate was lifted to a new range of 3.75-4.00%, the first hike since 2023. And judging by the reaction from the bond market, there will be more hikes to come. The 2-year Treasury rate rose to 4.76% last week, implying a Fed that remains behind the curve with more work to be done.

The market is now pricing in at least one more 0.25% rate hike by year end, which would bring the Fed Funds Rate up to 4.00-4.25%.

This is right in line with the Fed’s updated economic projections, which imply one more rate hike as well. Importantly, they increased their expectations for growth and inflation while reducing their projection for the unemployment rate. What that means is “price stability” will be their primary focus for now as they consider the labor market to be close to “maximum employment.”

And with Diesel prices in the US hitting a record high, prices are anything but stable. At $6.51 per gallon, they are now 73% higher than at the start of the Iran War ($3.76/gallon). These increases will feed directly into elevated freight, agricultural, and shipping prices, which in turn will raise consumer prices for food, building materials, and everyday manufactured goods.

2) Rate Hikes and Returns

How will a rate hiking cycle impact the stock and bond markets?

The answer may surprise you.

Since 1982, stocks have actually performed better following rate HIKES than rate CUTS.

The reason for this is simple: more often than not, rate hikes occur when an economy is in an expansion, and that typically means corporate earnings are rising.

That’s certainly true today, with S&P 500 earnings now expected to rise 34% in 2026, up from 15% at the start of the year.

As for the bond market, we can break it down into three categories: short duration, long duration, and credit sensitive.

Short duration instruments such as 3-month Treasury bills will immediately earn a higher return, as their yields track the Fed Funds Rate closely. That means top cash-equivalent yields will rise to over 4% by year end if the Fed hikes rates just one more time.

Long duration instruments are a different animal as their returns in the short run are inversely related to the direction of interest rates (rising rates = falling prices and vice versa).

Recently, that direction has been up. The 10-year Treasury yield moved above 5% last week, closing at its highest level since July 2007.

But will the 10-Year yield rise or fall in response to Fed rate hikes?

That depends on many factors, including growth and inflation expectations among market participants. When the Fed was cutting rates in 2024 and 2025, the 10-year yield actually rose. And if market participants start to believe the Fed is serious about attacking inflation, we could see the opposite reaction during a rate-hiking cycle.

While it’s been a challenging year in the bond market thus far, long-term bond investors should take solace in the following chart. It illustrates the nearly one-to-one relationship between the starting 10-year Treasury yield and forward 7-year bond returns. And with the 10-year yield at 5%, prospective returns haven’t looked this good since 2007.

Lastly, credit sensitive instruments have yet to show any sign of higher default risk due to the shift back to a tightening cycle. Credit spreads for both investment grade and high yield bonds remain near historical lows, and Kevin Warsh noted in the press conference that their action merely removed a “dose of accommodation.” Translation: monetary policy is still easy in his view, and not an impediment to credit flows.

3) You Can’t Print Your Way to Prosperity

During his midterm election speech, President Trump said the following:

“If the Republicans win the House of Representatives and the United States Senate … I will issue a dividend to every adult citizen … for $5,000.”

With 245 million adult U.S. citizens, that would mean a total cost of over $1.2 trillion.

But unlike a profitable company, the federal government has no earnings from which to pay a dividend.

Instead, it’s running a budget deficit of $2 trillion.

So where would the money come from?

Absent spending cuts or new revenues, we’d have to borrow it – adding another $1.2 trillion to the national debt.

And what would that do to inflation?

We’ve seen this movie before. The covid stimulus programs under President Trump and President Biden were all funded with borrowed money – pushing inflation above 9%, the highest level in 40 years.

While the $5,000 check would feel great in the short run, it would have a negative impact on many households over time as wages would fail to keep pace with rising prices. Put simply: you can’t print your way to prosperity. Gains in real wealth must be earned the hard way, through investment, innovation and productivity.

What are the odds of a $5,000 dividend being approved after the election?

0%.

The Republicans currently control the Presidency, House and Senate. But they lack the votes and support within their own party to pass such a bill. This is true in large part because affordability remains the number one issue among voters, and this would only make the crisis even worse.

And after the midterms, it will become even harder to pass, if prediction markets are correct.

Polymarket currently has the odds of the Democrats winning the House at 93% and the Senate at 64%. Which means the most likely outcome after November is a divided government, and legislative gridlock for the next two years.

4) The Housing Affordability Gap

To afford the median-priced home in the US today, you now need an income of $126,000 – a record high.

What’s the actual median household income? $86,000.

That’s a 47% gap, near the highest on record.

How did we get here?

Skyrocketing home prices combined with skyrocketing mortgage rates.

The 30-year mortgage rate in the US of close to 7% is at its highest level since January 2025 and more than double the artificially low rates from a few years ago.

Meanwhile, prices remain elevated, rising over 80% in the past decade. That has far outpaced income growth, leading to an affordability crisis.

The result: the number of Buyers has plummeted to near record lows while the number of Sellers has slowly increased to a 6-year high.

The spread between the number of Sellers and Buyers of 58% is a new record high, according to Redfin estimates.

This should, in theory, put a lid on price appreciation and help improve affordability over time. And in certain markets where the number of Sellers far outweighs the number of Buyers, we should see outright price declines. Here are top 10 Buyer’s markets in the U.S. right now…

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And that’s it for this week. Thanks for reading!

Every week I do a video breaking down the most important charts and themes in markets and investing. Subscribe to our YouTube channel HERE for the latest content.

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. Read our full disclosures here.