The Fed Is Hiking Into A Growth Slowdown | Weekly Roundup

Episode Summary

Executive Summary: The episode centered on the Fed’s latest hike and a broader debate about whether markets are underpricing a transition to stagflation: sticky inflation, weakening real wages, fading fiscal stimulus, and rising real rates. The hosts argued the U.S. may be entering a slowdown even as the Fed sounds hawkish, while also exploring Europe’s structural weaknesses, Japan-style currency debasement, Canada’s policy pivot, and the mixed incentives behind frontier AI CEOs calling for regulation.

Main Topics: Fed hike, guidance, and market repricing (Priority: 5/5): The panel discussed the latest Fed meeting, the unanimity behind the hike, and the possibility that markets are underpricing additional hikes into October/December despite already high rates and hawkish dots. Stagflation risk and fading U.S. stimulus (Priority: 5/5): The hosts argued that multiple temporary supports—fiscal refunds, SPR drawdowns, tariff-related effects, and capex/tax dynamics—are fading, while inflation remains sticky and growth may slow with a lag. Housing weakness and real-economy stress (Priority: 4/5): They questioned whether housing can recover with mortgage rates high and whether the economy has enough remaining growth engines if AI capex decelerates. Real wages, labor market, and inflation persistence (Priority: 4/5): A major thread was that nominal wage growth is slowing while inflation is re-accelerating, producing negative real wage growth and pressure on consumers and the Fed. Europe vs. Japan: currency debasement as policy (Priority: 5/5): Vincent Delawarde laid out a long-horizon thesis that Europe may eventually need a Japan-style currency debasement to restore competitiveness, but via messier political crises than Japan’s coordinated approach. UK, Canada, and relative-value macro trades (Priority: 3/5): The conversation expanded to trade ideas around a weaker euro, UK equities, Swiss franc hedges, and Canada as a politically and economically important model for policy reorientation. AI capex boom and frontier lab regulation (Priority: 3/5): The group speculated on why leading AI CEOs are suddenly aligned on slowing frontier development, suggesting motives include regulatory capture, IPO positioning, or self-interested pacing of competition.

Key Arguments: The Fed’s latest hike looked more hawkish than expected, and the market may still be underpricing the probability of another hike, especially in October. Policy is shifting from a period of heavy stimulus to one where fiscal tailwinds fade, real rates rise, and growth effects show up only with a lag. Inflation is not transitory in the near term; it is being supported by energy, tariffs, and wage dynamics, while real wages are turning negative. Housing is likely to stay weak because mortgage rates remain high and there are few policy levers left to unlock demand without new stimulus. A large share of recent earnings growth may reflect fiscal transfers and stimulus rather than purely AI-driven productivity gains. Europe is structurally weaker than Japan was in 2012 and may ultimately need currency debasement to preserve competitiveness and fiscal stability. The UK may be a better relative value than the continent because it has a single central bank, more policy flexibility, and under-owned equities. Canada is becoming a key case study for pragmatic policy reorientation, with strong domestic capital pools and a shift away from purely ESG-driven allocation. Frontier AI CEOs may be coordinating regulation for self-interested reasons: slowing rivals, preparing for IPOs, or seeking regulatory capture.

Data Points: Token 2049 Singapore attendance: 25,000 attendees - Promotional intro for the crypto conference Token 2049 speaker count: 300 speakers - Promotional intro for the crypto conference Token 2049 exhibitors: 500 exhibitors - Promotional intro for the crypto conference Token 2049 side events: more than 1,000 side events - Promotional intro for the crypto conference week Fed meeting hiking cycle: first hike this cycle - Discussion of the latest Fed decision Fed vote outcome: unanimous - All committee members reportedly voted for the hike October hike pricing: roughly 50% priced - Market pricing discussed for the next meeting Market path by mid-next year: roughly 4 hikes priced - Rates market pricing contrasted with Fed dots Real wage growth before Iran war: about 1%-2% - Vincent described real wage growth before the latest inflation shock Real wage growth since shock: around six months of negative real wage growth - Used to argue consumer strain is intensifying Personal income growth at start of year: about 10% - Vincent referenced slowing income growth via treasury/tax data Withheld tax growth: down from about 6%-7% to 4%-5% - Used as a slowdown indicator less sensitive to capital gains Estimated fiscal stimulus/tailwind: about $300B-$400B - Estimate of stealth midterm stimulus from refunds, SPR drawdown, tariffs, and capex effects Corporate tax collection reduction from capex: about $100B - Included in the broader fiscal stimulus estimate Japan yen move: from around 165 to roughly 50%-65% weaker over time (as described) - Used to support the case for long-term currency debasement Japan debt-to-GDP after BOJ netting: about 150% - Vincent said net debt burden improved materially Japan debt-to-GDP before improvement: about 200% - Historical comparison to current level Japan tax collection growth: about 6% - Cited to show improved fiscal dynamics UK pension allocation to domestic equities: from 50% to 5% - Used to argue UK assets are deeply under-owned Canada foreign capital issue: not quantified - Repeated as a major macro problem driving policy change

Pivotal Quotes: "we're finally kicked off a hiking cycle, at least." — Host: Opening discussion of the Fed meeting and the shift in rate expectations "I'm more on the negative side of it, which is things take time." — Vincent Delawarde: On real wage pressure and the lag before inflation and slowdown data fully show up "Europe today is very much where Japan was in 2012" — Vincent Delawarde: Core thesis comparing Europe’s structural challenges with Japan’s earlier deflation/debasement era

Implications: Listeners should expect continued volatility in rates, a possible slowdown/stagflation backdrop, and more focus on FX and relative-value trades. The bigger message: policy tailwinds are fading, so growth, earnings, and housing may weaken before the market fully prices it.