The Wall Street Skinny Sep 18, 2026 · recorded Sep 16, 2026 37m 17m saved
With Mike Medeiros, Macro Strategist at Wellington Management, which a host put at more than $1.5 trillion in assets under management
Kevin Warsh said three times in one meeting that financial conditions are too loose, and Mike Medeiros counted.
The market read the quarter-point rise as a box being ticked, with one more signaled and then a pause. Medeiros read the repetition as an admission that the Federal Reserve had mismeasured how restrictive its own policy was, which makes the rate path longer than what is priced.
"It hasn't been as tight as they thought, and they're adjusting for it."
Medeiros spoke to the show in January with a materially different view, and he marked his own position against that conversation repeatedly. He builds the forecasts he trades off: unemployment below 4% by year end, headline inflation at 4%, and a gap of about 200 basis points between where policy rates are and where the Taylor rule says they should be.
The full interview is covered here so you can skip it. 37 minutes of audio, 20 minutes of reading.
Here are the 16 predictions that matter.
Key Takeaways
The chair said financial conditions were too loose three times, which Medeiros reads as the whole message of the meeting
His forecasts are unemployment below 4% and headline inflation at 4% by the end of the year
The gap between the policy rate and the Taylor rule's answer is about 200 basis points, and he expects it to close
One more rise this year is consistent with stocks five to ten percent lower, and he sees a 10% correction as the risk into year end
Investment-grade and Treasury issuance together come to roughly $4T next year
Strong demand for that paper is his evidence that rates are not yet restrictive
A $5,000 check to every adult would be 3% of GDP against a 6.5% deficit, which is why he doubts it happens
Fiscal policy flips to a drag of half to 1% of GDP in 2027, mostly from Medicaid cuts
Next year is year four of the AI capital-spending cycle, and previous innovation cycles peaked around year four
He expects divided government after the midterms, with the House generic ballot at Democrats plus seven or eight
1. Conditions Are Too Loose
Asked what he took from the press conference, Medeiros went straight to a phrase the chair repeated.
The chair said it three times
So, one of the things that Chairman Warsh really stressed in the meeting — we can get into this, he mentioned it three times — is that financial conditions are too loose.
Mike Medeiros
That is a change from the July meeting. Financial conditions means the level of stock prices, credit spreads and borrowing costs taken together, and they are how a policy rate reaches the real economy.
The mechanism he is describing
So, Fed hikes, financial conditions should tighten, meaning stocks go down a little bit, credit widens, that flows through into the real economy.
Mike Medeiros
His conclusion is that the committee has decided its own measurement was wrong.
They had mismeasured their own policy
It hasn't been as tight as they thought, and they're adjusting for it.
Mike Medeiros
Which turns policy into a headwind for both stocks and credit
And so, in terms of reaction going forward, it's now a headwind, I think, for equity and credit markets, the longer inflation stays where it is.
Mike Medeiros
He noted how far that is from the view he gave the show in January.
2. The Curve Bear-Flattens
Short-dated yields have been rising faster than long-dated ones for months, flattening the curve, and Medeiros expects that to continue.
The meeting green-lights the flattening
And then for the bond market, the curve has been bear-flattening over the last few months. I think this green-lights that to continue.
Mike Medeiros
His own forecasts are what make him more hawkish than the price.
His numbers for year end
I have it below 4% by the end of the year, and I have headline inflation at 4%.
Mike Medeiros
If those land, he said, more than the three additional rises already priced could be justified. What the committee actually signaled was one more and then a hold, which is below what the market had assumed for next year, and the chair used the press conference to lean hawkish against the published forecasts.
The immediate market read
They delivered, I think, with the press conference, probably a bit more hawkish of an outcome than the market was intellectually expecting, and so the dollar's higher.
Mike Medeiros
Twos and fives up, thirties steady
The curve's bear-flattened, with twos and fives higher on the day. Thirties pretty well contained, which I think is really important.
Mike Medeiros
And gold fell, because the response was conventional
And then gold typically doesn't like orthodox policy, and so last I checked gold was actually selling off a little bit
Mike Medeiros
Both he and the hosts were working without a terminal in the room, which they said flat out.
3. Not About Trump
A host laid out the political framing: a Truth Social post from the president telling the Fed to lower rates and be a patriot, and a questioner at the press conference asking Warsh how his conversation with the president had gone, which he declined to answer. The question was whether a single rise was a credibility gesture. Medeiros started with a joke.
He expected a different question
I thought you were going to ask me what nickname President Trump is going to come up with for Chairman Warsh now that he's hiked
Mike Medeiros
And then dismissed the premise
Cutting rates in this environment would be clinically insane.
Mike Medeiros
His case is the data, not the politics
The economy's growing above trend. The unemployment rate's falling, not rising, and inflation has been above target for five and a half years, and it's still rising.
Mike Medeiros
He does not think a quarter point changes much on its own.
A signal rather than a policy
A 25 basis point rate hike that was expected by the market probably won't make a difference. But it is a signal. The Fed rarely does one hike and then stops.
Mike Medeiros
So the answer to the political question is no
I don't think the Fed's decision today to raise rates had anything to do with countering the wishes of the president.
Mike Medeiros
One host also observed that both left-leaning and right-leaning outlets had turned a decision that was not about the president into a story about him.
4. What Was Priced In
Asked what the market had expected going in, Medeiros gave the number.
A quarter point was 90% priced
So, a 25 basis point hike was 90% priced in going into the meeting.
Mike Medeiros
There was a one to two percent chance of something larger, which faded after the previous week's inflation report.
The delivery matched the expectation almost exactly
it was largely expected that they do 25, they signal one, maybe two more, and then signal that they're flat, and that's kind of exactly what they delivered.
Mike Medeiros
The gap is in next year, not this meeting
there's now an additional three hikes priced in by September of next year
Mike Medeiros
5. Oil's Second-Round Effects
Asked about the chair's handling of commodity and geopolitical pressure, Medeiros rated the performance.
He called the communication a master class
A master class in communication.
Mike Medeiros
His characterization of what the chair conveyed was that the oil price is the inflation problem, and that the conflict with Iran is the reason.
Medeiros's version of the argument
"Listen, oil over $100 — we have an inflation problem. And if it wasn't for the issues going on in Iran, headline inflation would be much more well-contained, and we wouldn't have to worry as much about the risks that oil prices lead to second-round impacts in different measures of core."
Mike Medeiros
The transmission from an energy price into prices that have nothing to do with energy is already visible.
The chain he traced
oil prices went up, jet fuel prices went up, guess what happens to airline prices? They go up too.
Mike Medeiros
With household inflation expectations elevated and unemployment low, he said those second-round effects are a genuine risk rather than a theoretical one. The corollary is that the oil price is also the release valve.
Lower oil takes the pressure off
But I think it was a pretty clear signal that if oil prices are back where they were before the Iran conflict, then that would take a lot of pressure off of us to hike further.
Mike Medeiros
6. Warsh Against Bessent
A host asked how the Fed and a Treasury secretary who has been intervening in both the long end of the Treasury market and the currency market are working together. Medeiros first questioned whether bonds are mispriced at all.
Nominal growth of 7% against a 10-year 200bp below it
it's not clear to me that bonds are completely mispriced right here, because we've had 7% nominal growth in the first half of the year and 10-year yields are 200 basis points below that.
Mike Medeiros
He added that regressing yield levels across countries against deficits, or against current account balances, puts the United States roughly in line. The conflict is about objectives rather than prices.
Two institutions, two mandates
it's pretty clear to me they want to prevent yields from going much higher. And I do understand both sides — they have different mandates.
Mike Medeiros
The administration's own January framing cuts against high mortgage rates
And I'm old enough to remember the lines from January, when it was like "make America affordable again," and 7% mortgage rates don't help with that.
Mike Medeiros
But lower mortgage rates would restart the one thing pulling inflation down
At the same time, if you're Chair Warsh, you don't want mortgage rates going down, because the last thing you want are house prices and rents to reignite, because that is a source of disinflation right now.
Mike Medeiros
He does not pretend this resolves neatly
It's, to be perfectly honest, difficult to navigate, because you have two very powerful institutions that want essentially something different.
Mike Medeiros
7. The Productivity Free Lunch
The place where both sides agree, and where the chair also pointed, is productivity.
The one thing that solves everything at once
There's a saying in economics, the only free lunch is productivity growth.
Mike Medeiros
Faster productivity growth would deliver growth with lower inflation and improve debt levels at the same time. His problem with it is timing.
And it is not showing up in the data
It's just not here yet. And so obviously there's a ton of investments in AI that could at some point in the future pay off in terms of ROI and productivity — I don't really see it in the near-term horizon. Productivity's actually below the historic average right now.
Mike Medeiros
Asked why, he gave three reasons: the investments take time, the technology is early, and there are legal and social risks that make companies cautious.
The decision a manager has to make
And it takes a lot for a company to say, "You know what, we're going to fire people and start using a really untested form of technology."
Mike Medeiros
His horizon is three to five years
my bias has been that there's probably a high probability productivity comes through in a three-to-five-year horizon
Mike Medeiros
And the trigger he expects is a recession
My own rough estimate is that you could see some signs of it coming out of the next recession, where companies go through the normal firing process, but they replace that lost labor with technology.
Mike Medeiros
8. $4T Of Issuance Next Year
A host raised September's corporate issuance calendar, and her own theory that the Treasury interventions were timed to give AI-related borrowers an easier landing in the long end. Medeiros put a number on next year's total supply.
Corporate and government issuance combined
if you combine investment grade with Treasury issuance for next year, it'll probably be around 4 trillion, which is a pretty significant number.
Mike Medeiros
Most of the Treasury share sits in bills at the front end, where the cost just rose by a quarter point.
Each rise raises the cost of the whole program
And so, the more the Fed hikes, the more you have to issue at a higher yield and the potential for less demand there.
Mike Medeiros
The corporate side has been absorbed easily, which he treats as evidence rather than comfort.
Easy absorption is proof that rates are not restrictive
Because if there's such strong demand, if corporate spreads are at the tights, then what evidence is there that the funds rate is at a restrictive level?
Mike Medeiros
So yields can keep rising until something breaks
But so far, we haven't found that level of yield that's necessarily restrictive.
Mike Medeiros
9. The $5,000 Check
On the midterms, Medeiros said the issue the electorate cares about is affordability, and that lower oil prices would be the most direct help. On the outcome, he gave the numbers.
The House generic ballot is Democrats plus seven or eight
the generic ballot test for the House is Democrats plus seven or eight. That's typically consistent with them getting 40 to 50 seats, which would be enough to take the majority.
Mike Medeiros
And the Senate map has widened
The Senate polls — a month ago we weren't talking about Kansas, two months ago we weren't talking about Iowa, now we are.
Mike Medeiros
His base case is already in the betting markets
And my bias is we do shift to divided government — that's mostly priced in if you look at the betting markets.
Mike Medeiros
A host explained the offer Medeiros was skeptical about: the president said at a rally in Dallas that every adult would receive $5,000 if Republicans held the House and the Senate.
The arithmetic he does not believe
Furthermore, a $5,000 check to every adult would be 3% of GDP when the deficit's 6 and a half percent and inflation's been above target for five and a half years. I'm a little skeptical that actually happens.
Mike Medeiros
10. Fiscal Drag In 2027
Medeiros said the more useful policy would run the other way.
What he would rather see than another easing
the best thing they could do is to actually come up with credible fiscal tightening over the next few years, because the Fed can only do so much.
Mike Medeiros
A host asked him to define fiscal drag, and he did.
The definition, plainly
So fiscal easing is when there's a legislative package or non-legislative package that boosts GDP growth.
Mike Medeiros
This year's easing was 1% of GDP, split two ways
And so the One Big Beautiful Bill this year — the fiscal easing, or boost to GDP, was about 1% of GDP. Half of it was to households, half of it was to corporates.
Mike Medeiros
And next year it reverses
we're set to have a drag of around half to 1% of GDP around this time next year.
Mike Medeiros
The source of the drag
Mostly Medicaid cuts. That's baked into the One Big Beautiful Bill — when they wrote the legislation, it was set to start in 2027, which is pretty typical for similar bills.
Mike Medeiros
The design is deliberate
You put all the goodies up front and then the negative stuff towards the end, after the midterms.
Mike Medeiros
He called the drag necessary given where inflation starts, and summed up the combined change.
A tightening Fed and a fiscal drag together
And so it's a less growth-positive backdrop now, going forward.
Mike Medeiros
11. Bills, Not The TGA
A host set out three routes the Treasury could take to fund continued intervention, and what each one does to the market.
Buying back long-dated bonds is not new
if we are buying back bonds in the long end of the curve that are wonky, off-the-run things that are clogging up bank balance sheets, we've been doing this since 2024.
A host
Funding it with bills is close to a stealth tightening
If we're doing it by issuing T-bills, that's, if anything, an interest-rate-neutral to small stealth hike.
A host
And spending the cash balance would be an easing the Fed cannot do
But if we're using the Treasury General Account, that's a stimulative action that is effectively the ease that Warsh can't and would never do.
A host
Medeiros picked the first two: keep issuing bills, consistent with what the Treasury has already chosen, and increase buybacks depending on the offers received. He ruled out the third.
The debt ceiling is why he doubts the cash balance gets used
I'm a little skeptical around the TGA, just because next year we're going to have to deal with the debt ceiling, and I don't think you want to be meddling with the TGA when you're in extraordinary measures
Mike Medeiros
Once the Treasury is in extraordinary measures, the date on which it would have to start prioritizing payments depends on that cash balance and cannot be predicted.
And the failure mode is absolute
And obviously, an accidental default is still a default.
Mike Medeiros
The hosts asked him to explain an accidental default, which he compared to a mistake made because one system was not talking to another.
A host's version of the same point
Like, let's just not accidentally not pay our bills.
A host
He put the debt-ceiling deadline around the summer of next year, and said the measure that would actually lower the rate structure is credible fiscal reform, whose probability he put at pretty low.
12. Where Consensus Is Wrong
A host recalled that before the call Medeiros had said he was surprised how many people he spoke to expected no move at all, and asked where positioning is concentrated now.
The two consensus views he thinks are wrong
I would say I think the general consensus is yields are around peaky-type levels, and I think there's more interest in picking a top in the level of yields, and that stocks are totally fine because the Trump administration wants growth and AI is dominating everything. I think both could be challenged over the next six months.
Mike Medeiros
He allows for a pause in the move first
Now, tactically we have moved a lot in a short period of time, and so I wouldn't be surprised if over the next couple weeks there's some consolidation.
Mike Medeiros
Over three to six months, though, he has the Fed still rising and the 10-year yield still going up. On equities, his argument is that the chair has said what he wants.
The Fed wants stocks lower, so he takes the other side
he wants financial conditions tighter, and there's more room, as we discover where restrictive rates are, for financial conditions to tighten and stocks to have a correction.
Mike Medeiros
13. The End Of Forward Guidance
The point Medeiros said is least understood is a change in how the Fed communicates.
Eighteen years of being told in advance
we in the market are preconditioned to forward guidance, and forward guidance has been happening since 2008 — 18 years, the market has been used to the Fed giving a very clear signal of where they want to take things.
Mike Medeiros
His view is that the tool does not fit the situation
And to me, forward guidance is a tool that you use when you're at the zero lower bound in terms of interest rates.
Mike Medeiros
With inflation elevated and forecast variability high, he said, guidance is the wrong instrument, and the chair appears to want genuinely two-sided odds on each meeting.
The chair wants a coin flip, not a steer
it's almost like Chair Warsh actually wants the market to go 60/40 and not have a strong skew to it.
Mike Medeiros
Healthy in the long run, uncomfortable now
He's really incorporating a much more data-dependent approach, which I think ultimately is really healthy, but could lead to some indigestion issues for the market in the short term.
Mike Medeiros
An audience question asked how anyone reacts to data if the chair says he is not data-dependent. Medeiros said the published projections remain the benchmark he marks his own forecasts against.
The projections are the scorecard
So, he's not data-dependent, but at the same time, we do know, we can mark to market things to the SEP
Mike Medeiros
That works for about three months
And so, you still have the SEP probably for the next three months. After that, it's a little more subjective
Mike Medeiros
For now the reaction function is legible
Now, I think at least for the next six weeks or so, we have a pretty clear indication of how the Fed would interpret elevated inflation or decline in the unemployment rate — they would hike more.
Mike Medeiros
Six weeks earlier, after the July meeting, he said there was no such indication. A host agreed and drew the consequence for anyone positioned the other way.
Her read on the risk
Warsh has been, I think, cautioning us to prepare for that, and I think people who are caught offsides are in trouble.
A host
14. Year Four Of AI Capex
An audience question asked about the pace at which data centers are tapping credit markets. Medeiros's answer on the financing was that it is being done at higher yields and absorbed anyway, which is the same evidence he used earlier. On the economy, he put a number on the contribution.
Intellectual property and R&D added almost a point of growth
In the last nine months, intellectual property, non-residential investment, R&D spending have contributed almost a percentage point to growth — that's one of the highest for those two small non-residential investment components we've seen in 60 years.
Mike Medeiros
That also means growth is being carried by fewer things. His historical comparison sets a date.
Previous capex cycles peaked in year four
go back to previous innovation cycles, things like railroads, canals, the 1920s, internet telecommunications — all of these led to pretty big capex cycles that peaked around year four. Next year will be year four for the AI capex cycle.
Mike Medeiros
The second risk he named is political, and it is the rare issue on which he sees agreement.
Both parties are moving against data centers
There's definitely a building consensus, outside of Trump, that data centers are potentially problematic.
Mike Medeiros
And the next campaign starts immediately
The 2028 election cycle will start the day after the election. Data centers and AI will be a top-three issue.
Mike Medeiros
He expects that to produce headline risk within six to nine months that could weigh on next year's growth.
15. A 10% Correction Call
Asked for an S&P 500 target, Medeiros gave a range and then the method.
His call for the rest of the year
I would say, to me, the S&P is vulnerable to a correction here, between now and the end of the year, of around 10%.
Mike Medeiros
The framework is the Taylor rule, which takes an estimate of the neutral rate, the unemployment rate and core inflation and returns a policy rate.
What the rule does
The Taylor rule is this idea that, if you look at your assumption for r-star, the neutral rate, where's the unemployment rate, where's core inflation, and it spits out an output of where the policy rate should be.
Mike Medeiros
He was clear that no central bank follows it. What he uses is the distance between the actual rate and the rule's answer.
The gap is 200bp and he expects it to close
And right now that gap is about 200 basis points, but I think it's going to close by the end of the year.
Mike Medeiros
And here is what closing it costs equities
If the Fed hikes one more time between now and the end of the year, that would be consistent with about five to ten percent lower in stocks.
Mike Medeiros
If the Fed pauses next year, he thinks the gap closes anyway, from the data side rather than the policy side. His concern for 2027 is a widening divergence.
Earnings forecasts rising while his growth conviction falls
My biggest concern is that '27 earnings expectations keep going up while my conviction in nominal growth slowing keeps going up, and so there's a building gap there.
Mike Medeiros
Which is a change from January
I'm much less constructive on equities going forward, given how much optimism is priced in.
Mike Medeiros
16. Why Banks Are Falling
An audience member asked why bank stocks were falling hour by hour if rate rises are supposed to help them. A host answered first.
The curve is the reason
Obviously a flatter yield curve is not so great for banks generally speaking — their business model is predicated on a steeper yield curve.
A host
Medeiros agreed and added a second reason that runs through the economy rather than the balance sheet.
Banks track nominal growth more than almost anything
banks are one of the most sensitive assets to nominal growth. So if expectations about nominal growth are going down, that should be reflected in banks.
Mike Medeiros
The offset is regulation
At the same time, the tailwind for bank stocks is the regulatory backdrop, which is super positive in the short term.
Mike Medeiros
His resolution is that lighter regulation matters because it lets banks lend, and lending only pays if nominal growth holds up.
So the growth call wins
And so if nominal growth is slowing, that's less good for bank stocks.
Mike Medeiros
Bonus Insights
He does not publish anywhere a reader can follow
I'm not active at all on social media. But we'll start publishing more externally, through the Wellington website.
Mike Medeiros
Historically, he said, Wellington published his work internally, and that is changing. One host also noted, against herself, how consistently Medeiros marked his current views against the ones he gave the show in January, and said she could not remember what she had argued the day before.
The hosts framed the session as the day they had been building toward for weeks, and noted that the target range moved from 3.50% to 3.75% up to 3.75% to 4%, that the statement changed in a hawkish direction, and that the vote was unanimous with no dissent.
Medeiros's bottom line is that the Fed has admitted its policy was not tight enough, which makes the consensus on peak yields and resilient equities the two positions most likely to be wrong over the next six months.
Products, Companies & Tools Mentioned
Wellington Management (Medeiros's firm, which a host put at more than $1.5 trillion in assets; he said it is starting to publish his macro work externally)
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