Stocks Drop As Fed Hikes Rates… And Energy’s Next Move As Crude Surge Cools Off 9/16/26

CNBC's "Fast Money"

CNBC's 'Fast Money' covers the market reaction to the Federal Reserve's first rate hike in three years, with discussions on inflation concer

Key takeaways

• The Fed's hawkish stance, led by Chairman Kevin Warsh, signals continued rate hikes despite strong economic fundamentals.
• Inflation remains elevated due to persistent supply shocks, including geopolitical tensions and tariffs, which the Fed views as ongoing risks.

Main topics

• Federal Reserve rate hike and market reaction
• Inflation drivers: geopolitics, tariffs, energy prices

Notable quotes

"The economy is strong, inflation is a problem. We're going to go on a rate hike cycle." – Kevin Warsh (paraphrased)

Conclusion

The episode concludes that while the Fed's tightening cycle may pressu

Transcript preview

Speaker 6 (0:00) For many of us, going further isn't a choice. It's a feeling we can't ignore. Because ambition has a way of outgrowing where it began. Turning dreams into direction. Every journey brings us closer to the life we imagine. So, where will your journey take you? Etihad. Beyond Borders. Speaker 7 (0:30) It's all about the money. Speaker 4 (0:31) I want to be the person in my family that creates generational wealth. How Speaker 5 (0:35) they earn it, spend it, and make dreams come true. I'm Speaker 4 (0:38) not going to sugarcoat it. It's hard, but it's so worth it. Speaker 5 (0:41) Millennial Money. All Speaker 4 (0:42) new Saturdays, 3 Eastern. CNBC. Speaker 6 (0:47) Live from the Nasdaq Market site in the heart of New York City's Times Square, this is Fast Money. Here's what's on tap tonight. The rate hike heard round the world. We'll dive into all the market reaction to the central bank's first rate increase in three years. How to set yourself up for tomorrow's trade and beyond. Plus, oil in retreat. Crew prices pulling back from more than four-month highs. But is there real relief in sight? And how all the moves will impact the fuel trades. And later, SpaceX shares start to take flight. Boeing gets grounded on more delays to 737 MAX production and not loving it. McDonald's trading on more than two-year lows. What's behind the weakness and what's it say about the strength of the consumer? I'm Melissa Lee. Come to you live from Studio B at the NASDAQ. A super-sized desk tonight. Tim Seymour, Karen Feinerman, Dan Nathan, Guy Adami, and Michael Katopoulos, head of multi-acid macro investing at Janus Henderson Investors. Michael, welcome. And we start off with that market pullback after today's Fed rate hike. The S &P, which had been higher most of the session, dropping after Chairman Kevin Warsh said inflation was still too high. That would close off its worst levels. The index still posted its lowest close since the end of July. Short-term Treasury yields, meanwhile, moving in the opposite direction. The two-year crossing 4.7 percent for the first time since July 2024. Let's bring in Steve Leesman, who's got all the headlines out of that Fed press conference today. Steve. Speaker 1 (2:05) Yeah, Melissa, this was a well-anticipated rate hike by the market, but it still led to a sharp sell-off in bonds and stocks, as Fed Chairman Kevin Warsh appears to have offered a more hawkish outlook for rates than the markets expected. The two-year yield surging 13 basis points after the statement and during the press conference, with Warsh offering a strong commentary on his views on inflation and how the Fed should respond. Speaker 4 (2:29) My judgment some weeks ago was the inflation summer trends weren't passing the test. I've seen very little information since that would make me reverse that decision. So I've stuck with it. Speaker 1 (2:41) So in the statement and the summary of economic projections, they said the hike was intended to support a timelier return to a 2 % target, that inflation remains elevated, the committee will deliver price stability. And then the summary said, the projection said 16 of 18 FOMC members project at least one more hike this year. Well, that's what the market's pricing in with actually a 51 % probability of a hike even in October. which is higher than I would have thought, but 90 % for that hike by December. Without naming his chosen Fed chair, Kevin Warsh, President Trump, waited on today's rate hike decision, writing, interest rates in the United States should be 1 % or less because we are the best credit in the world by far. Lower the interest rates for the United States of America and fast. Well, much of Warsh's and the Fed's outlook is based on the economy being strong, unemployment being low, and the Fed having an opportunity to hike without really hurting the economy too much. Warsh said accommodation was removed. That means the Fed may have more to go to get to a place that would be restricted, Melissa. Speaker 6 (3:40) He said a dose of accommodation, which I thought was an interesting way of looking at it. Maybe 25 basis points equals one dose. You know, if you look on the dosage chart and if you're going to remove the 75 basis points that Powell gave to the markets, then maybe that gives you your baseline in terms of where the Fed goes back to. Speaker 1 (3:59) Well, that's why I asked the question I did, but he wasn't going to play. I thought it was a fair question to ask him about the neutral rate and where he was. The person before me had asked the question. He didn't. She didn't get much of an answer. But but that's the way that. prior Fed was talking, and I guess he's just not going to do that. But they would say the current rate is modestly restrictive, somewhat restrictive, and that they think it ought to be neutral. They would talk about it in those terms. That's the way the market thinks about it. By the way, everybody wakes up in the morning and when you make a decision to make an investment, you're thinking about what the neutral rate is. Would it be better to put it into a risk-free treasury or something more risky that has a higher return? Everybody thinks about the neutral rate. He said he's not thinking about it. And that's a problem, I think. And maybe, Melissa, remember, we had a lot of volatility last time on the long end. Now we get the volatility on the short end. This kind of volatility around Warsh Fed meetings might be the rule rather than the exception. Speaker 7 (4:55) Steve, politics aside, can both be true? So Kevin Warsh is basically saying the economy is strong. Inflation is a problem. We're going to go on a rate hike cycle. It appears that way. I'm paraphrasing. President Trump says. The economy is strong, best credit in the world. We have the lowest rates. Can both of those things be true? I mean, economic, just through the lens of economics. Speaker 1 (5:15) Oh, absolutely. I mean, look, if you're a bank, you're the first thing that you. To get in the door, to get the seat in front of the banker, you've got to be creditworthy, right? So the president is right about that. And by the way, that has always been true about the United States and something people don't recognize. We are a fabulous credit. We are incredibly rich. We can pay off our deficit anytime we want. The problem with the deficit right now and interest rates has nothing to do with our creditworthiness. It has everything to do with our political will to pay and how we're going to do it and how much debt we're going to be issuing. If we want to get rid of it, the deficit. We can do it tomorrow. It's 100 percent of GDP. You know, we can we see the enormous what's our coverage ratio, like three or four to one. We're a great credit. The president's right about that. But that's not the only thing that goes into judging what interest rates are. It has a lot to do with supply out there, with what's going on with AI. And of course, with inflation, the bank's going to take what it thinks it needs to make money on a loan. And creditworthiness just gets you in the door before you get a rate. Speaker 3 (6:17) Steve, Tim. So in terms of what impacts inflation, though, I thought it was fascinating if we believe that supply shocks aren't really supposed to be part of the inflation profile. The more he spoke, a bit ironic, right? The more he spoke, I heard geopolitics being a reason for the Fed to move. Thoughts on that? Is that really part of the core inflation story now with this Fed? Speaker 1 (6:40) I think the recent move in oil prices and the deterioration of the policy outlook or the military outlook in Iran has played a big deal in the Fed's thinking. And I also think if I think that would be the major cause, I think a minor cause is the tariffs on Canada. And by that, I mean. Things are one-off when they happen one time. But now you look at the trajectory of oil prices, you look at the trajectory of things in the Middle East, and you cannot get to a place where you see... Things getting better in three months or two months. And then you look at Canada and you say, oh, were tariffs one-off? No, I think there may be more to go when it comes to tariff, especially if this thing escalates with our second trade partner. If these things were one-off, the Fed could treat them as one-off things. But they're not. They're continuing. And the policy is uncertain. It's kind of random. And so you have to say, what's the best guess here? And the best guess is probably higher oil prices, especially, by the way, how diesel works its way into the economy. And for tariffs, it's more tariffs, not less. Speaker 6 (7:43) All right, Steve, thank you. Steve Leisman in Washington for us. Let's go straight to Michael Cantopoulos, who was our guest trader for this evening. What do you think? Because, you know, we have what the reaction of the Fed is to these inflation shocks, and yet what they do doesn't really have any impact directly on these inflation shocks. So we're in a scenario where, you know, rates are going higher in inflation. may not necessarily be immediately impacted. Yeah, you know, Speaker 8 (8:12) I thought Chair Warsh actually did a pretty good job of saying that it wasn't just because of geopolitics. I think he had three reasons. And reason number one, I would argue, is the biggest reason, which is growth is really strong. I mean, nominal GDP growth is humming along between 6 % and 8%, depending on how you want to measure it. That's a really, really strong economy. I mean, you look at earnings growth in Q2. I know earnings in the economy are different things, which we always talk about on the show. But earnings growth is probably going to come in about 27 percent year over year. The unemployment rate is basically at an all time low. You know, there's just no reason to be accommodative. And I like the fact that actually Chair Warsh did say that, you know, it's a hard, hard argument to make that that they're tight or that they're restrictive. They clearly are not. Speaker 6 (8:57) Do you think that the market reaction was the right reaction? I mean, it is the right reaction. It is a market reaction. But is that the way you would have played Speaker 8 (9:05) it? It's a good question. I actually messaged a colleague of mine while the market was reacting saying, yes, this is the right reaction from the market. So I absolutely think it is. You know, there's a couple of things that went on. It was a good first step for the Fed and for Chair Warsh. But that's all it is, the first step. It's Speaker 3 (9:22) a Speaker 8 (9:22) dose. It's a dose. Is Speaker 2 (9:23) that a child size of dose? Is that an adult dose? It was a child Speaker 8 (9:27) size Speaker 3 (9:27) dose. I mean, I really do believe that. Speaker 8 (9:29) Well, doses Speaker 3 (9:29) aren't one, two or three. I mean, when Guy takes his medicine, I know it's multiple doses. He's Speaker 7 (9:33) got Speaker 3 (9:33) a baby Speaker 8 (9:33) aspirin every day. There you go. That's Speaker 7 (9:35) for hard stuff, you know. Speaker 8 (9:37) And, you know, you had a dose, right? But the market is pricing significantly higher rates than what the Fed is anticipating. And so if the Fed's not keeping up with the market, the market's going to say, OK, we're going to keep going until the Fed gets really serious. And the Fed isn't really serious yet. But it's a good first step. I'll give them that. Speaker 2 (9:56) So I agree with a lot of what you said. I mean, growth is really good. I do think, you know, he's been the chair for, I don't know, what, four months now, five months. Earlier on in that tenure, geopolitical was still pretty new. And all right. So now we're seven plus months into very elevated oil prices. So I don't think it's crazy to think that that can persist. They're very clear in their message. You know, inflation is elevated. So I was sort of not surprised at the first reaction that we talked for a while about the last few days about would the farther end, you know, the long. Get some relief. Get some relief, which did happen. And then I was very surprised, actually, to see the market sort of sell off. I wouldn't be shocked if that, you know, a couple of days of that and then it returns. This 25, I know it's now part of a potential multiple dosage and that was a concern, but that couldn't have been on no one's radar screen. Right. Right. I mean, we are. I still think we're accommodative. Speaker 5 (10:58) Yeah, Warsh also mentioned that stable prices is good for a lower earning sort of part of, you know, our economy or citizenry, however you want to put it. But, you know, at the end of the day, it's actually really hard for them in the meantime, right? And if you think of what we're already seeing now, you're seeing delinquency rates, you're seeing default rates go higher. You see, you know,