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* FIEND'S SUPERBEAR MARKET REPORT *

* September 9, 2026 *

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* e-mail: fiendbear@fiendbear.com *

* web address: http://www.fiendbear.com *

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Fiend Commentary
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The Fed Is Running Out of Good Choices

Tuesday’s market action brought the Federal Reserve’s September problem into much sharper focus.

The United States has intensified military and economic pressure on Iran, including strikes against Iranian tankers and new sanctions. But that should not be confused with the Strait returning to normal. Iran continues threatening additional restrictions, while U.S. forces are maintaining only a limited maritime escort route.

That explains why oil refuses to stay down.

Brent has moved from roughly $72 in July to almost $100. The U.S. Strategic Petroleum Reserve has meanwhile fallen to 285.4 million barrels, its lowest level since 1982.

A move through $100 would create another problem for the Fed just as it approaches its September 15–16 meeting. Gasoline, diesel, transportation and manufacturing costs would begin filtering through the economy again, making it increasingly difficult to argue that the energy shock is safely behind us.

Thursday and Friday May Decide September

The market currently assigns about a 60% probability to a September rate increase. That is much higher than the roughly 30% probability seen before Warsh’s Jackson Hole speech, but considerably lower than some of the near-80% readings seen earlier this summer.

Now come the two reports that matter most.

August PPI arrives Thursday morning. CPI follows Friday.

Soft numbers would give the Fed exactly what it needs to stay on hold. Warsh could say inflation remains too high but that the recent trend justifies patience, particularly with uncertainties surrounding employment and the Middle East.

Hot numbers create a much more uncomfortable situation.

The August employment report was substantially better than expected, with payrolls rising 162,000 and previous months revised upward. The labor-market excuse for waiting has therefore weakened.

If PPI and CPI now accelerate while oil approaches $100, the economic argument for at least a token 25-basis-point hike becomes much stronger.

That does not mean the Fed will actually do it.

A September Hold Still Looks More Plausible

My suspicion remains that the Fed finds a reason to wait.

The September hike has been “almost certain” before, only to disappear when the next economic report created uncertainty. Warsh has discovered that hawkish rhetoric can support the dollar and tighten short-term financial conditions without requiring the Fed to accept the economic consequences of another increase.

There is also substantial political pressure in the opposite direction. President Trump has publicly called for significantly lower interest rates and recently linked those demands to trade policy. Fed officials have continued to emphasize that their decisions will depend on inflation and employment data rather than political requests.

That makes September an important credibility test.

If inflation comes in hot, employment remains reasonably strong and the Fed still holds, the bond market may conclude that the threshold for another hike is much higher than Warsh’s speeches suggest.

That could be precisely the wrong message for the 10-year Treasury.

Holding Rates Can Still Be an Easing

There is another complication that receives surprisingly little attention.

Holding the nominal policy rate unchanged is not necessarily neutral if inflation rises. If inflation moves higher while the federal funds rate remains fixed, the real interest rate falls.

In practical terms, monetary conditions become somewhat easier without the Fed announcing a cut.

That would be especially significant if the rise in inflation is accompanied by another oil shock. The Fed could keep its official rate unchanged while the purchasing power of that rate quietly declines.

The stock market would initially welcome a September hold.

The bond market might not.

A falling two-year yield combined with a 10-year moving toward 5% and a 30-year remaining above 5.2% would produce an increasingly steep yield curve. It would say that investors expect the Fed to remain patient in the short run while demanding more compensation for the inflation and fiscal consequences of that patience over the long run.

That would be a much bigger warning than another FedWatch percentage.

Five Percent May Be the Number Wall Street Notices

Stocks have tolerated the 30-year Treasury above 5% surprisingly well.

The 10-year reaching 5% could be different.

Mortgage rates, corporate debt, commercial real estate financing and many valuation models are more closely tied to the 10-year. A risk-free government security yielding 5% also begins competing directly with stocks trading at historically rich valuations.

Why accept enormous technology-stock risk when a Treasury offers roughly 5% without earnings risk?

That does not automatically end the bull market. But it changes the calculation, particularly in a market where so much of the advance has depended on a handful of enormous AI and semiconductor companies.

Tuesday’s breadth was already poor. Declining S&P 500 stocks outnumbered advancers by 2.4 to 1, while Nasdaq recorded 136 new lows against only 55 new highs.

The pot is getting hotter even if the indexes remain relatively close to their records.

Weak Data May Be the Only Easy Escape

The Fed’s easiest outcome now would ironically be disappointing economic data.

A soft PPI and CPI would give Warsh room to hold.

Weak employment next month would reinforce that decision.

Lower oil would ease the entire problem.

That combination could allow the Fed to remain inactive through the midterms while insisting that inflation is gradually returning toward target.

But if inflation rises, oil breaks $100 and employment remains decent, September becomes much harder.

Raise rates and risk greater economic and political pressure.

Hold rates and risk convincing the bond market that the Fed is behind the curve.

Cutting rates is not remotely justified under those conditions.

That is why the next three days matter.

Warsh has spent months saying the Fed remains committed to 2% inflation. The bond market has spent months demanding progressively higher yields.

If PPI and CPI come in benign, the confrontation can be postponed again.

If they come in hot, Warsh may finally have to choose between the policy his speeches imply and the policy the Fed has repeatedly preferred.

The 10-year is already at the door of 5%.

Another excuse to wait could be what finally lets it through.

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